Japanese Yen bears retain control; USD/JPY looks to build on strength beyond 149.00

• The Japanese Yen continues with its underperformance amid reduced BoJ rate hike bets.
• Domestic political uncertainty further weighs on the JPY amid the recent USD bullish run-up.
• Expectations that the Fed will keep rates elevated underpin the buck and support USD/JPY.

The Japanese Yen (JPY) remains depressed against its American counterpart, pushing the USD/JPY pair beyond the 149.00 mark, to its highest level since early April during the Asian session on Wednesday. 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 has been a key factor behind the JPY’s relative underperformance since the beginning of this month.

Moreover, domestic political uncertainty ahead of the House of Councillors election on July 20 further undermines the JPY and acts as a tailwind for the USD/JPY pair on the back of the recent US Dollar (USD) rally. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, shot to its highest level since June 23 amid expectations that the Federal Reserve (Fed) would delay cutting rates on the back of a slight pickup in US inflation.

Japanese Yen continues to be undermined by political uncertainty, diminishing odds for more BoJ rate hikes

• 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 constructive technical setup favors bulls; slightly overstretched RSI warrants some caution

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.