- The Japanese Yen drifts lower for the second straight day amid US trade deal optimism.
- Bets that the BoJ will hike rates in 2025, and economic uncertainty could limit JPY losses.
- The Fed’s hawkish pause pushes the USD and USD/JPY higher ahead of Trump’s presser.
The Japanese Yen (JPY) turns lower for the second straight day against a broadly stronger US Dollar (USD), lifting the USD/JPY pair closer to mid-144.00s during the early part of the European session on Thursday. Against the backdrop of the optimism over US-China trade talks, US President Donald Trump’s comments of a big trade deal announcement later today boost investors’ confidence. This, in turn, is seen undermining demand for traditional safe-haven assets, including the JPY. The USD, on the other hand, attracts some follow-through buying on the back of the Federal Reserve’s (Fed) hawkish pause on Wednesday.
Meanwhile, minutes from the Bank of Japan’s (BoJ) March meeting indicated that the central bank remains ready to tighten further if economic and price outlooks hold. This, along with heightened economic uncertainty led by Trump’s rapidly shifting stance on trade policies, should act as a tailwind for the JPY. Moreover, geopolitical risks stemming from the protracted Russia-Ukraine war, conflicts in the Middle East, and a dangerous military confrontation on the India-Pakistan border could limit losses for the JPY. Traders might also refrain from placing aggressive USD bullish bets and opt to wait for Trump’s press conference at 14:00 GMT.
Japanese Yen attracts fresh sellers amid fading safe-haven demand after Trump’s remarks
- Minutes from the Bank of Japan’s (BoJ) monetary policy meeting held on March 18-19 revealed that the central bank remains ready to hike interest rates further if inflation trends hold. Policymakers, however, stressed caution due to global volatility on the back of heightened economic uncertainty stemming from US tariff policies.
- Meanwhile, BoJ Governor Kazuo Ueda said that he is mindful of the impact of the rising food prices on underlying inflation. Furthermore, expectations that sustained wage hikes will boost consumer spending and inflation in Japan suggest that the BoJ may not abandon its rate-hike plans altogether and tighten further in 2025.
- US President Donald Trump tempered hopes for a quick resolution to the US-China trade war by saying that he was not open to lowering the 145% tariffs imposed on China. Trump added that he is in no real hurry to sign any deals, though he said that he will announce a major deal with a big, highly respected country later today.
- On the geopolitical front, Russia and Ukraine engaged in a wave of strikes on Wednesday, ahead of Russian President Vladimir Putin’s unilateral three-day ceasefire, which came into force earlier this Thursday. Furthermore, the Israeli military said that it had fully disabled Yemen’s main airport in the capital, Sanaa, which is controlled by the Houthis.
- The US Dollar bulls struggle to capitalize on the previous day’s move higher despite the Federal Reserve’s signal that it is not leaning toward cutting rates anytime soon. In fact, Fed Chair Jerome Powell said that there is a great deal of uncertainty over US trade tariffs and that the right thing to do now is to wait for further clarity.
- Traders now look forward to the US Weekly Initial Jobless Claims, due for release later during the North American session. The focus, however, is Trump’s press conference at 14 GMT in the Oval Office, which will play a key role in influencing the broader risk sentiment and drive demand for the safe-haven JPY.
USD/JPY bulls seize intraday control; breakout above the 144.25-144.30 hurdle in play
From a technical perspective, the intraday failure near the 144.00 mark favors the USD/JPY pair amid still negative oscillators on the daily chart and against the backdrop of last week’s rejection near the 200-period Simple Moving Average (SMA) on the 4-hour chart. Some follow-through selling below the 143.40-143.35 immediate support will reaffirm the negative outlook and drag spot prices below the 143.00 mark, back towards the 142.35 area, or the weekly low. This is followed by the 142.00 round figure, which, if broken, could make the currency pair vulnerable to weakening further.
On the flip side, the 144.00 mark might continue to act as an immediate hurdle ahead of the 144.25-144.30 supply zone. A sustained strength beyond the latter might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 145.00 psychological mark. The momentum could extend further towards the 200-period SMA on the 4-hour chart, currently pegged near the 145.25 region, en route to last week’s swing high, around the 146.00 neighborhood.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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