Yen Rallying

USDJPY is firmly lower this week as a stronger Japanese Yen and receding US trade-war risks have weighed on the greenback. A hike from the BOJ at its latest meeting along with hawkish signals since, have fuelled a wave of fresh demand for JPY. This week, BOJ’s Tamura urged the bank to hike rates to at least 1% in coming months to deal with hot inflation. Indeed, the BOJ’s director general of monetary affairs, Kazuhiro Masaki, noted that the BOJ will continue to hike rates if inflation continues to develop as expected.

Hawkish BOJ Expectations

Following a muted second half of the year in 2024 with no policy action and little in the way of signal from the bank, 2025 has started with a bang for the BOJ. Traders are now widely expecting further tightening measures from the bank in coming months with only a material drop in inflation likely to alter this view. Against this backdrop, JPY looks likely to continue to appreciate near-term. USDJPY has room to correct further lower particularly if we see a truce between the US and China, which will have clear implications for the Fed also. Looking ahead this week, traders will be watching US jobs data tomorrow. Any weakness in headline readings should see USDJPY pushing deeper through the end of the week while an upside surprise could halt the JPY rally for now.

Technical Views

USDJPY

The sell off in USDJPY has seen the market breaking below the bull channel and below the 154.74 level. Price is currently siting on support at the 152 level and with momentum studies bearish, risks are skewed to a break lower. 149.30 will be next support to watch ahead of the longer-run target at 146.81.