Japanese Yen remains depressed despite US-Japan deal; USD/JPY hovers around 147.00

• The Japanese Yen gets a temporary lift after Trump announced a US-Japan deal. 
• Domestic political uncertainty prompts heavy intraday selling around the JPY.
• A modest USD bounce from a two-week low further supports the USD/JPY pair. 

The Japanese Yen (JPY) remains on the back foot against a broadly rebounding US Dollar (USD) on Wednesday and assists the USD/JPY pair to stick to its intraday gains around the 147.00 mark. Media reports that Japan’s Prime Minister Shigeru Ishiba will resign as early as this month add a layer of uncertainty and prompt aggressive intraday selling around the JPY, following the Asian session uptick to a two-week high.

Apart from this, the upbeat market mood is seen as another factor undermining demand for the safe-haven JPY amid reduced bets for an immediate rate hike by the Bank of Japan (BoJ). That said, the announcement of a US-Japan trade deal might hold back the JPY bears from placing aggressive bets. Moreover, the uncertainty over the Federal Reserve’s (Fed) rate-cut path might keep a lid on the USD and the USD/JPY pair. 

Japanese Yen bulls largely shrug off US-Japan trade deal amid domestic political uncertainty

• In a social media post, US President Donald Trump announced that his administration had completed a trade deal with Japan. Trump added that Japan will be subject to reciprocal tariffs of 15% and will open their country to trade, including cars and trucks, rice, and certain other agricultural products. 
• This helps ease market concerns about the potential economic fallout from steep US tariffs and pushes the Japanese Yen higher against the US Dollar for the third straight day, to a nearly two-week top during the Asian session on Wednesday. However, domestic political uncertainty caps the JPY gains.
• Japan’s ruling coalition – the Liberal Democratic Party (LDP) and its junior partner Komeito – failed to secure a majority in the upper house election on Sunday. Having already lost its majority in Japan’s more powerful lower house last year, the outcome is expected to undermine the coalition’s influence. 
• History suggests that domestic political uncertainty tends to keep the Bank of Japan on the sidelines, suggesting that prospects for rate hikes could be delayed for a little bit longer, at least until October. This warrants caution for the JPY bulls and supports the USD/JPY pair amid a modest USD uptick. 
• BoJ Deputy Governor Shinichi Uchida reiterated that the central bank will continue to raise its policy rate if the economy and prices move in line with its projections. Core consumer inflation may briefly dip below 2% the next fiscal year but is expected to gradually re-accelerate thereafter, Uchida added. 
• Traders now look forward to the release of the US Existing Home Sales data, due later during the North American session. The focus, however, remains on the flash global PMIs on Thursday, which would provide a fresh insight into the global economic health and influence demand for the safe-haven JPY. 

USD/JPY shows resilience below the 38.2% Fibo. level and the 100-day EMA

The USD/JPY pair struggles to find acceptance below the 38.2% Fibonacci retracement level of the monthly upswing. Moreover, spot prices have been showing some resilience below the 100-day Exponential Moving Average (EMA). This, in turn, warrants some caution for bearish traders amid neutral oscillators on the daily chart. Hence, some follow-through buying could lift spot prices further towards the 147.65 hurdle en route to the 148.00 round figure. A sustained strength beyond the latter would negate any near-term negative outlook and lift spot prices to the 149.00 mark with some intermediate hurdle near the 148.65 region, or the weekly high.

On the flip side, the 146.50 area, or the 100-day EMA, now seems to protect the immeediate downside ahead of the Asian session low, around the 146.20 area. Some follow-through selling below the 146.00-145.90 region, or the 50% retracement level, would be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to accelerate the fall further towards the 145.00 psychological mark.