- The Japanese Yen ticks lower as US-China trade deal optimism undermines safe-haven demand.
- Strong Tokyo consumer inflation figures reaffirm bets for additional rate hikes by the BoJ in 2025.
- Dovish Fed expectations might keep a lid on any meaningful USD upside and the USD/JPY pair.
The Japanese Yen (JPY) extends its steady intraday descent through the Asian session on Friday, which, along with a modest US Dollar (USD) strength, lifts the USD/JPY pair further beyond the 143.00 mark. Investors remain hopeful about the potential de-escalation of the US-China trade tensions. This remains supportive of a positive risk tone and turns out to be a key factor that undermines demand for traditional safe-haven assets, including the JPY.
Any meaningful JPY depreciation, however, seems elusive in the wake of the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates. The bets were reaffirmed by data showing that consumer inflation in Tokyo – Japan’s capital city – accelerated sharply in April. In contrast, Federal Reserve (Fed) officials indicated a willingness to cut rates, which might cap the USD upside and further lend support to the lower-yielding JPY.
Japanese Yen struggles to lure buyers as receding safe-haven demand offsets strong Tokyo CPI print
- US President Donald Trump told reporters that the US and China held discussions on Thursday to help resolve the trade war between the world’s two largest economies. Moreover, a White House official said that lower-level in-person talks as well as a phone call between US and Chinese staff had taken place this week.
- This fuels hopes of a quick US-China trade resolution, boosts investor confidence, and weakens demand for safe-haven assets like the Yen. China, however, had claimed earlier that no discussions had taken place.
- The conflicting statements underscore the uncertainty around the current trade war, which might continue to infuse volatility in the global financial markets and act as a tailwind for safe-haven assets. Furthermore, the prospects for additional interest rate hikes by the Bank of Japan should limit deeper losses for the JPY.
- Data released earlier this Friday showed that Tokyo Consumer Price Index (CPI) grew 3.5% year-on-year in April from 2.9% in the prior month. Adding to this, Tokyo core CPI, which excludes volatile fresh food prices, rose 3.4% YoY, or a two-year high, compared to the 3.2% expected and sharply higher than the 2.4% in March.
- Furthermore, a gauge that excludes both fresh food and fuel costs and is closely watched by the BoJ rose 3.1% in April from a year earlier after a 2.2% rise in the previous month. This points to broadening inflation in Japan and gives the BoJ headroom to raise interest rates further after a 50 basis point rate hike earlier this year.
- On the other hand, Federal Reserve Governor Christopher Waller said on Thursday that he would support an interest rate cut if tariffs start weighing on the job market. Separately, Cleveland Fed President Beth Hammack stated that a rate cut as soon as June could be possible if clear evidence of economic direction is obtained.
- This counters Fed Chair Jerome Powell’s remarks last week that the US central bank is well-positioned to wait for greater clarity before considering any adjustments to our policy stance. Nevertheless, traders are still pricing in the possibility that the Fed will lower borrowing costs at least three times by the end of this year.
- The prospects for more aggressive easing by the Fed, to a larger extent, overshadowed mostly upbeat US macro data released on Thursday. In fact, the US Department of Labor reported that Initial Jobless Claims increased modestly to 222,000 for the week ending 19 April and pointed to continued labor market resilience.
- Furthermore, the US Census Bureau reported that Durable Goods Orders surged 9.2% in March, marking the third consecutive monthly increase and far exceeding market expectations of a 2% rise. Transportation equipment, which also recorded its third straight monthly gain, led the increase with a jump of 27% in April.
- Meanwhile, the divergent BoJ-Fed policy expectations, along with hopes that Japan will strike a trade deal with the US, should act as a tailwind for the lower-yielding JPY. Japan’s chief negotiator, Economy Minister Ryosei Akazawa, will hold a second round of trade talks with US Treasury Secretary Scott Bessent next week.
USD/JPY might face stiff resistance near the weekly swing high, around the 143.55 region
The USD/JPY pair showed some resilience below the 23.6% Fibonacci retracement level of the March-April downfall and the subsequent move back above the 143.00 mark favors bullish traders. Moreover, oscillators on hourly charts have been gaining positive traction and support prospects for additional gains. However, technical indicators on the daily chart – though they have been recovering – are yet to confirm a positive bias. Hence, any further move up might confront stiff resistance near the 143.55 area, or the weekly high. Some follow-through buying, however, could lift spot prices beyond the 144.00 round figure, towards the 144.40 area. The latter represents 38.2% of Fibo. level, which if cleared decisively should pave the way for some meaningful recovery in the near term.
On the flip side, dips below the 23.6% Fibo. level might continue to attract some dip-buyers near the overnight swing low, around the 142.30-142.25 region. This is followed by the 142.00 round figure, below which the USD/JPY pair could slide to mid-141.00s en route to the 141.10-141.00 region. The downward trajectory could extend further towards intermediate support near the 140.50 area and expose the multi-month low – levels below the 140.00 psychological mark touched on Tuesday.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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