04 Feb 2025

• The Japanese Yen attracts fresh sellers amid fading safe-haven demand. 
• Worries about Trump’s trade tariffs seem to undermine the JPY further.
• The divergent BoJ-Fed expectations should help limit losses for the JPY.
• The Japanese Yen (JPY) continues to experience weakness during the early European trading session on Tuesday, primarily due to concerns that Japan may become a target of trade tariffs imposed by US President Donald Trump. Additionally, President Trump's recent decision to postpone the implementation of trade tariffs on Canada and Mexico has diminished the demand for safe-haven assets, further exerting pressure on the JPY. This situation, coupled with a rise in US Dollar (USD) purchases, enables the USD/JPY pair to maintain its position above the significant 155.00 level.
  
  Nevertheless, any substantial decline in the JPY appears to be constrained by expectations that the Bank of Japan (BoJ) will increase interest rates. Furthermore, the likelihood of additional policy easing by the Federal Reserve (Fed), which would narrow the interest rate gap between Japan and the United States, also helps to mitigate potential losses for the JPY. Therefore, it is advisable to await a strong continuation of selling pressure before concluding that the USD/JPY pair has established a near-term bottom and is poised for any significant upward movement.

• Japanese Yen bears refrain from placing aggressive bets amid divergent BoJ-Fed expectations

• Investors expressed relief following US President Donald Trump's decision to postpone the implementation of 25% trade tariffs on Canada and Mexico for an additional 30 days, which has weakened the appeal of the Japanese Yen as a safe-haven asset. Prime Minister Shigeru Ishiba of Japan is scheduled to meet with Trump later this week, and their discussions may offer further insights into the potential risks associated with tariffs, particularly given Japan's significant trade surplus with the United States. On Monday, Japan's Finance Minister Katsunobu Kato indicated that the government plans to assess the effects of Trump's new tariffs on the national currency, amid concerns regarding possible economic repercussions. The Bank of Japan's Summary of Opinions, published on Monday, revealed that board members concurred on the necessity of continuing interest rate increases if economic activity and inflation trends remain favorable. Additionally, a notable rise in core inflation in Tokyo, marking the fastest annual increase in nearly a year, sustains expectations for further interest rate hikes by the Bank of Japan.
• The Manufacturing Purchasing Managers' Index (PMI) from the Institute of Supply Management (ISM) rose from 49.3 in the previous month to 50.9 in January, surpassing the anticipated figure of 49.8. Furthermore, the Prices Paid Index, which serves as an indicator of inflation, increased to 54.9 from 52.5. The Employment Index also saw an uptick, moving to 50.3 from 45.4, while the New Orders Index improved to 55.1. This development occurs amid speculation that trade tariffs imposed by Trump may elevate inflation levels, potentially reducing the Federal Reserve's motivation to further lower interest rates, thereby supporting the strength of the US Dollar. This perspective was reinforced by remarks from Chicago Fed President Austan Goolsbee, who cautioned that uncertainty surrounding Trump's policies might hinder the central bank's intentions to reduce interest rates.
• Atlanta Fed President Raphael Bostic remarked on Monday that while the US labor market continues to demonstrate unexpected strength, the potential for tariff threats complicates the outlook. In addition, Fed Governor Michelle Bowman indicated on Friday that while rate cuts are anticipated this year, any future adjustments should be approached with caution and implemented gradually, allowing for adequate data evaluation. Traders are now anticipating the release of US economic data, specifically the Job Openings and Labor Turnover Survey (JOLTS) and Factory Orders, for potential short-term opportunities later in the North American trading session.

• USD/JPY pair needs to find acceptance above the 156.00 mark for bulls to retain near-term control

• From a technical standpoint, the USD/JPY currency pair is likely to encounter significant resistance around the 156.00 level. This is closely followed by the swing high from the previous week, situated near the 156.25 area. Should prices surpass this level, they may advance towards the 156.75 supply zone. Continued buying momentum that propels prices beyond the 157.00 threshold would favor bullish traders and facilitate a movement towards reclaiming the 158.00 level, with an intermediate resistance point around 157.50.
  
  Conversely, a decline below the psychological level of 155.00 appears to find support near the 154.65 region, followed by the 154.30 area, the 154.00 round figure, and the 153.70 zone, which corresponds to a one-month low reached in January. A decisive breach of these support levels could render the USD/JPY pair susceptible to a more pronounced decline towards the 153.00 level, potentially leading to the 152.60-152.55 region and the 152.30 area. The latter serves as the 100-day Simple Moving Average (SMA) and is expected to provide a robust support base for spot prices.