04 Mar 2025

The Japanese Yen is experiencing some selling pressure during intraday trading due to disappointing domestic economic indicators. A slight increase in the US Dollar is enabling the USD/JPY pair to recover towards the mid-149.00 range. Expectations of a rate hike by the Bank of Japan, coupled with a risk-averse market sentiment, are likely to mitigate any significant decline in the Yen.

As the European session approaches on Tuesday, the Japanese Yen (JPY) has relinquished a substantial portion of its intraday gains against the US Dollar, bringing the USD/JPY pair closer to the mid-149.00s. Recent data from Japan revealed an unexpected rise in the unemployment rate and a decline in corporate capital expenditure for the first time in three years, leading to increased selling pressure on the JPY.

Nevertheless, a substantial depreciation of the Yen appears unlikely, given the prevailing hawkish outlook regarding the Bank of Japan's monetary policy. Additionally, the risk-averse sentiment in the market and US President Donald Trump's warnings to Japan regarding currency devaluation may provide support for the Yen. It would be wise to await further buying momentum before concluding that the USD/JPY pair has reached a near-term low.

Speculation regarding an imminent interest rate increase by the Bank of Japan has led to the yield on the benchmark 10-year Japanese government bond remaining near its highest point since 2009, thereby supporting the Japanese Yen.

The meeting between Ukrainian President Volodymyr Zelenskiy and US President Donald Trump concluded unfavorably on Friday, with a White House official confirming a suspension of military aid to Ukraine, which has contributed to market uncertainty.

Starting this Tuesday, Trump’s tariffs on goods from Mexico and Canada will be implemented, alongside a new 10% tariff on Chinese imports. In response, China's Commerce Ministry has pledged to take necessary countermeasures to protect its legitimate rights and interests.

On Monday, Trump stated that he has cautioned the leaders of China and Japan against devaluing their currencies in relation to the US Dollar, asserting that such actions disadvantage American industries.

Japan's Finance Minister, Katsunobu Kato, remarked on Tuesday that the nation is not engaged in a policy aimed at devaluing its currency, reaffirming Japan's "basic stance on currency policy" in discussions with US Treasury Secretary Scott Bessent.

In a separate press conference, Japan's Economy Minister Ryosei Akazawa indicated that government intervention in the currency market occurs only when movements are deemed "speculative."

Prime Minister Shigeru Ishiba also stated that the government is not pursuing a policy of currency devaluation.

Data released earlier on Tuesday revealed an unexpected rise in Japan's Unemployment Rate from 2.4% to 2.5% in January, while Japanese companies decreased their capital expenditures on plants and equipment by 0.2% during the October-December period.

The Institute for Supply Management's (ISM) Manufacturing PMI fell to 50.3 in February from 50.9 the previous month, while the Prices Paid Index surged to 62.4, nearing a three-year high amid concerns over import tariffs.

Additionally, investors are increasingly worried that Trump's policies may exacerbate price pressures and hinder activity in critical industrial sectors.

From a technical standpoint, the recent failure to maintain the 151.00 support level, which has now become resistance, reinforces a bearish outlook for the USD/JPY pair in the near term. Additionally, the oscillators on the daily chart remain significantly entrenched in negative territory and are not yet approaching the oversold zone. This situation bolsters the likelihood of a continuation of the established downtrend observed over the past two months. Consequently, a further decline below the mid-148.00s towards the next significant support level around the 148.00 mark appears to be a plausible scenario. The downward movement may extend further to the 147.35-147.30 range, heading towards the 147.00 level.

Conversely, the 149.65-149.70 range is now positioned as an immediate barrier, preceding the psychological threshold of 150.00. Any upward movement may still be perceived as a selling opportunity near the 150.60 area, which is expected to limit the USD/JPY pair around the critical resistance levels of 150.90-151.00. This latter level serves as a crucial juncture; if surpassed decisively, it could trigger a short-covering rally towards the intermediate resistance of 151.40-151.45, leading towards the 152.00 round figure and the 152.35 area, which coincides with the significant 200-day Simple Moving Average (SMA).