Today, the Japanese yen is struggling to extend its gains due to optimistic developments regarding trade negotiations and the postponement of tariffs. President Trump's statement about possible exemptions for the automotive industry may provide short-term support to the markets, but it also underscores the instability and volatility of current policy.
However, there are factors that may limit the downside for the yen, such as expectations of an interest rate hike by the Bank of Japan. Uncertainty around tariffs has led investors to reassess their expectations for rate hikes in Japan. Nevertheless, if the Bank of Japan does decide to raise rates in light of rising domestic prices and wages, this would support the yen in the long term.
Concerns over a rapidly escalating trade war between the US and China—which could undermine global economic growth—combined with optimism about a possible trade agreement between Japan and the US, are also supportive for the yen.
On the other hand, comments from Federal Reserve officials about potential rate cuts in response to economic shocks from tariffs are putting pressure on the US dollar. If the Fed indeed begins lowering rates, this could weaken the dollar and further support the yen.
Today's release of the Empire State Manufacturing Index may influence the USD/JPY pair's dynamics. However, Jerome Powell's speech on Wednesday is a key event for gauging the Fed's future path on interest rates. This will significantly impact the US dollar and could provide a new catalyst for USD/JPY.
Technical analysis shows that upward movement will face strong resistance around the psychological level of 144.00. However, sustained momentum beyond this level could trigger a short-covering rally, lifting spot prices toward the 144.45–144.50 range and possibly extending to the key 145.00 level. The bullish impulse may stretch further to the 145.50 zone and the round number of 146.00.
Conversely, weakness below the 143.00 level is expected to find support near the 142.25–142.20 level, just above the next round level of 142.00, which coincides with the multi-month low reached last Friday. A decisive break below this level could be seen as a new trigger for bearish momentum, dragging the USD/JPY pair down to support at 141.60 and then toward the 141.00 level. Further losses could expose support at 140.30 and the September 2024 swing low before spot prices potentially drop to the psychological 140.00 mark.
It's also worth noting that daily chart oscillators are approaching oversold territory, indicating a potential correction is on the horizon.
