Japanese Yen remains vulnerable near multi-month low against USD

The Japanese Yen remains depressed amid diminishing odds for an immediate BoJ rate hike.
Domestic political uncertainty further weighs on the JPY amid the recent USD bullish run-up.
Reduced Fed rate cut bets remain supportive of elevated US bond yields and benefited the buck.

The Japanese Yen (JPY) hit a fresh low since April against its American counterpart during the Asian session on Wednesday, with the USD/JPY bulls now awaiting a sustained strength beyond the 149.00 mark before placing fresh bets. Investors pared their bets for an immediate interest rate hike by the Bank of Japan (BoJ) amid concerns about the economic fallout from higher US tariffs. This, in turn, has been a key factor behind the JPY's relative underperformance since the beginning of this month.

Adding to this, domestic political uncertainty ahead of the House of Councillors election on July 20 keeps the JPY bulls on the defensive, which, along with the recent US Dollar (USD) rally, lends support to the USD/JPY pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, shot to its highest level since June 23 following the release of US consumer inflation figures on Tuesday, which reaffirmed expectations that the Federal Reserve (Fed) would delay cutting rates.

Japanese Yen bears retain control as traders scale back bets for another BoJ rate hike in 2025

Recent polls indicate that Japan’s ruling coalition – the ruling coalition of the Liberal Democratic Party (LDP) and Komeito – might lose its majority in the Upper House election scheduled for July 20. This could heighten both fiscal and political risks in Japan and complicate trade negotiations amid the looming US tariffs on Japanese exports.
US President Donald Trump reignited trade war concerns last week and issued notices to key trading partners, including Japan, outlining individual tariff rates starting August 1. Japan faces a punishing 25% tariff on all exports to America amid stalled US-Japan trade negotiations, particularly over Japan’s protection of its rice market.
This comes at a time when economic growth in Japan has been slowing. Adding to this, declining real wages and signs of cooling inflationary pressures might further complicate the Bank of Japan's monetary policy normalization schedule, which turns out to be a key factor behind the Japanese Yen's underperformance against the US Dollar.
Traders pared their bets for a rate cut by the Federal Reserve later this month following the release of the upbeat US June jobs report. Moreover, data released on Tuesday showed that US consumer prices increased by the most in five months, reaffirming market expectations that the Federal Reserve would remain on the sidelines until September.
The US Bureau of Labor Statistics reported that the headline Consumer Price Index (CPI) rose 0.3% in June and the yearly rate accelerated to 2.7% from 2.4% in May. Meanwhile, the core gauge, which excludes fluctuating food and energy costs, increased by 2.9% from 2.8% prior, lifting US Treasury bond yields to their highest levels in several weeks.
Boston Fed President Susan Collins noted that it is challenging to set monetary policy right now amid uncertainty, and a solid economy gives the US central bank time to decide its next interest rate move. Tariffs could boost inflation over the second half of 2025 and push core inflation to around 3% by year's end, Boston added further.
Separately, Dallas Fed President Lorie Logan said the base case is that monetary policy needs to hold tight for a while longer to bring inflation down. Logan added that tariff increases appear likely to create additional inflationary pressure for some time, and an early rate cut by the Fed risks deeper economic scars on a longer road to price stability.
Traders now look forward to the release of the US Producer Price Index due later during the North American session. Apart from this, comments from influential FOMC members will drive the USD and the USD/JPY pair. The fundamental backdrop, meanwhile, suggests that the path of least resistance for the pair is to the upside.

USD/JPY needs to consolidate before the next leg up amid overbought RSI on hourly charts

From a technical perspective, the overnight breakout through the 148.00 mark (June peak) and a subsequent move beyond the May swing high, around the 148.65 area, could be seen as a fresh trigger for the USD/JPY bulls. That said, the Relative Strength Index (RSI) has moved closer to the 70 mark on the daily chart. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.

In the meantime, corrective slide now seems to find some support near the 148.65 region, below which the USD/JPY pair could slide to the 148.00 round figure. Any further decline could be seen as a buying opportunity and remain cushioned near the 147.60-147.55 horizontal zone. The latter should act as a key pivotal point, which, if broken, might prompt some technical selling and drag spot prices to the 147.00 mark en route to the 146.30-146.25 support.

On the flip side, a sustained strength and acceptance above the 149.00 round figure could lift the USD/JPY pair to the next relevant hurdle near the 149.35-149.40 region. The momentum could extend further, though it is more likely to face stiff resistance near the 150.00 psychological mark.

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.