• The Japanese Yen drifts lower against the USD for the third successive day on Monday.
  • Weaker Japanese PMIs and a positive risk tone seem to weigh on the safe-haven JPY. 
  • The divergent BoJ-Fed policy expectations could cap any further gains for USD/JPY. 

The Japanese Yen (JPY) remains depressed through the Asian session on the back of Japan's weaker Purchasing Managers' Index (PMI) print released earlier this Monday. Meanwhile, reports that US President Donald Trump's reciprocal tariffs would be narrower and less strict than initially feared boosts, which turns out to be another factor undermining the safe-haven JPY. The US Dollar (USD), on the other hand,  sticks to last week's recovery gains from a multi-month low and lifts the USD/JPY pair back closer to the 150.00 psychological mark. 

However, expectations that strong wage growth could filter into broader inflation trends and give the Bank of Japan (BoJ) headroom to  keep raising interest rates hold back the JPY bears from placing aggressive bets. In contrast, investors have been pricing in the possibility that the Federal Reserve (Fed) will resume its rate-cutting cycle soon amid worries about a tariff-driven slowdown. This, in turn, might cap gains for the USD and support the lower-yielding JPY, warranting caution before positioning for further move up for the USD/JPY pair. 

Japanese Yen bulls remain on sidelines amid a combination of negative factors

  • According to the preliminary estimates released earlier this Monday, the Au Jibun Bank Japan Manufacturing PMI declined from 49.0 in the previous month to 48.3 in March 2025. This marks the lowest reading since March 2024 and a ninth straight month of contraction. 
  • Adding to this, the service sector, which had been a bright spot in Japan’s economy, also lost momentum and contracted for the first time in five months. Furthermore, the overall business outlook slipped to the lowest since August 2020, which is seen weighing on the Japanese Yen. 
  • Reports over the weekend indicated that Trump is planning a narrower, more targeted agenda for the so-called reciprocal tariffs set to take effect on April 2. This fuels hopes for less disruptive Trump tariffs and boosts investors' confidence, further undermining the safe-haven JPY. 
  • Results from Japan's annual spring labor negotiations revealed that firms agreed to union demands for strong wage growth for the third straight year. Moreover, inflation in Japan remains above the central bank's 2% target and keeps the door open for more rate hikes by the Bank of Japan.
  • Moreover, BoJ Governor Kazuo Ueda said last week that the central bank wants to conduct policies before it is too late. Ueda added that achieving a 2% inflation target is important for long-term credibility and the BoJ will keep adjusting the degree of easing if the outlook is to be realized. 
  • BoJ Deputy Governor Shinichi Uchida said that the central bank will adjust the degree of monetary easing by raising policy rates if the economic and price outlooks are to be achieved. The BoJ will continue to assess economic and financial market situations at home and abroad, he added.
  • Meanwhile, the Federal Reserve gave a bump higher to its inflation projection, though maintained its forecast for two 25 basis points rate cuts by the end of this year. This keeps a lid on the recent US Dollar recovery from a multi-month low and should cap the upside for the USD/JPY pair. 
  • Traders now look forward to the release of flash US PMIs, which, along with speeches by influential FOMC members, could provide some impetus. The focus, however, will be on the release of the Tokyo CPI and the US Personal Consumption Expenditure (PCE) Price Index on Friday.

USD/JPY could extend the move up once the 200-period SMA on H4 is cleared

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From a technical perspective, the USD/JPY pair needs to break out above the 200-period Simple Moving Average (SMA) on the 4-hour chart – levels just above the 150.00 psychological mark – for bulls to retain short-term control. Given that oscillators on the daily chart have just started gaining positive traction, the subsequent move-up might then lift spot prices to the 151.00 mark en route to the monthly peak, around the 151.30 region.

On the flip side, the Asian session low, around the 149.30 area, might now protect the immediate downside ahead of the 149.00 mark. This is followed by the 148.60-148.55 support, which if broken decisively could make the USD/JPY pair vulnerable to accelerate the fall towards last week's swing low, around the 148.28-148.15 area en route to the 148.00 mark, and the 147.75 horizontal support. Some follow-through selling could pave the way for a slide towards the 147.30 region before spot prices eventually drop to the 147.00 mark and the 146.55-146.50 area, or the lowest level since early October touched earlier this month.

Japanese Yen FAQs

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.

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.

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.

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.

 

Source: Fxstreet