Japanese Yen weakens to two-week low against USD; focus remains on BoJ-Fed meetings

The Japanese Yen attracts sellers for the third consecutive day amid a positive risk tone.
A modest USD bounce from a multi-month low further lends support to the USD/JPY pair.
The divergent BoJ-Fed expectations might cap the pair ahead of central bank event risks.

The Japanese Yen (JPY) drifts lower against its American counterpart for the third straight day on Tuesday, lifting the USD/JPY pair to a nearly two-week high, above mid-149.00s during the Asian session. Investors continue to cheer China's latest stimulus measures to boost domestic consumption and household incomes. Adding to this hopes for a Ukraine peace deal ahead of talks between US President Donald Trump and Russian President Vladimir Putin remain supportive of the upbeat market mood. This, along with some repositioning trade ahead of this week's key central bank event risks, is seen undermining the safe-haven JPY.

However, firming expectations that the Bank of Japan (BoJ) will continue raising interest rates this year, bolstered by positive results from Shunto spring wage negotiations, might hold back the JPY bears from placing aggressive bets. Apart from this, the recent narrowing of the Japan-US rate differential, amid bets that the Federal Reserve (Fed) would lower borrowing costs several times this year, should contribute to limiting deeper JPY losses. This, along with the underlying bearish sentiment surrounding the US Dollar (USD), might keep a lid on the USD/JPY pair ahead of the crucial BoJ and the Fed policy meetings starting today.

Japanese Yen continues to be undermined by improving risk sentiment, ahead of BoJ-Fed policy meetings

Ahead of talks on Ukraine with Russian President Vladimir Putin, US President Donald Trump expressed optimism that both sides will be able to come to a ceasefire and ultimately a peace deal. This comes on top of China's special action plan to boost domestic consumption announced over the weekend and remains supportive of the upbeat market mood.
Japan’s Finance Minister Katsunobu Kato spoke at his regular press conference on Tuesday and said that bond markets should dictate yield movements. Kato added that the government would respond appropriately while allowing market forces to drive bond price fluctuations. This follows a brief spike in the 40-year Japanese government bond yield to a record high.
The preliminary results of Japan's annual spring labor negotiations, which concluded on Friday, showed that firms largely agreed to union demands for strong wage growth for the third consecutive year. This is expected to boost consumer spending and contribute to rising inflation, which, in turn, gives the Bank of Japan headroom to keep raising interest rates.
In contrast, traders are now pricing in the possibility of 25 basis points Fed rate cuts each at the June, July, and October policy meetings amid concerns about a tariff-driven US economic slowdown, signs of a cooling labor market, and easing inflation. This might cap the attempted US Dollar recovery from its lowest level since October 2024 touched on Monday.
On the economic data front, the US Census Bureau reported on Monday that Retail Sales in the US grew by 0.2% in February compared to the downwardly revised decline of 1.2% the prior month. This, however, was well short of expectations for a 0.7% rise, signaling consumer caution and compelling evidence for the Fed to resume its policy easing cycle soon.
Traders now look forward to Tuesday's US economic docket – featuring the release of Building Permits, Housing Starts, and Industrial Production data – for some impetus. The focus, however, will remain glued to the crucial BoJ-Fed rate decisions on Wednesday, which will play a key in determining the next leg of a directional move for the USD/JPY pair.

USD/JPY could aim to reclaim 150.00; Monday’s breakout above the 100-period SMA on the 4-hour chart in play

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From a technical perspective, the overnight breakout above the 100-period Simple Moving Average (SMA) on the 4-hour chart and subsequent strength above the 149.00 mark could be seen as a key trigger for bulls. Moreover, oscillators on the said chart have been gaining positive traction and support prospects for additional gains. Hence, some follow-through strength, back towards reclaiming the 150.00 psychological mark, looks like a distinct possibility. Any further move up, however, is more likely to confront stiff resistance and remain capped near the 150.75-150.80 region, representing the 200-period SMA on the 4-hour chart.

On the flip side, the 149.20 area, followed by the 149.00 mark and the 148.80 region (200-period SMA on the 4-hour chart) now seem to protect the immediate downside. A convincing break below the said support levels will suggest that the recent move-up witnessed over the past week or so has run out of steam and drag the USD/JPY pair to the 148.25-148.20 support en route to the 148.00 mark. The downward trajectory could extend further towards the 147.70 area, 147.20 region, and the 147.00 mark before spot prices eventually drop to retest a multi-month low, around the 146.55-146.50 region touched on March 11.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.