Japanese Yen remains depressed; lacks bearish conviction amid BoJ rate hike bets

• The Japanese Yen drifts lower on Thursday amid a further decline in JGB yields.
• An uptick in the US bond yields underpins the USD and lends support to USD/JPY.
• Bets that the BoJ continues to hike interest rates should help limit losses for the JPY.

The Japanese Yen (JPY) attracts some sellers during the Asian session on Thursday amid declining Japanese government (JGB) bond yields, triggered by Bank of Japan (BoJ) Governor Kazuo Ueda’s comments last week about potentially increasing regular bond buying. Apart from this, concerns over US President Donald Trump’s tariff plans and a positive risk tone turn out to be key factors undermining the JPY. 

The US Dollar (USD), on the other hand, draws support from a modest pickup in the US Treasury bond yields, which further contributes to the USD/JPY pair’s intraday uptick back closer to mid-149.00s. However, the growing market acceptance that the BoJ will continue raising interest rates this year amid broadening inflation in Japan helps limit any meaningful downside for the JPY and caps the currency pair. 

Japanese Yen bulls remain on the sidelines amid the recent pullback in JGB yields and positive risk tone

• Bank of Japan Governor Kazuo Ueda said last week the central bank was ready to increase government bond buying if long-term interest rates rise sharply, dragging Japanese government bond yields away from a more-than-a-decade high.
• In fact, the yield on the benchmark 10-year JGB touched its lowest level since February 12 and undermined the Japanese Yen, pushing the USD/JPY pair back closer to mid-149.00s during the Asian session on Thursday. 
• Japan’s inflation accelerated at the fastest pace since the summer of 2023 in January and keeps the Bank of Japan on track to raise its benchmark interest rate further, which might hold back traders from placing aggressive JPY bearish bets. 
• US President Donald Trump ordered an investigation on copper imports to assess whether tariffs should be imposed due to national security concerns. Trump also confirmed that tariffs on Canada and Mexico are “on time and on schedule”.
• Trump has already raised tariffs on goods from China and threatened new reciprocal tariffs for each country. Furthermore, Trump said on Wednesday that his administration will soon announce a 25% tariff on imports from the European Union.
• Bets for more interest rate cuts by the Federal Reserve are on the rise amid the recent downbeat US macro data, which pointed to a cooling economy and fueled worries about the growth outlook. This keeps the US Dollar bulls on the defensive. 
• Atlanta Fed President Raphael Bostic said on Wednesday that inflation has seen a lot of progress, though is still high and the US central bank should hold rates where they are, at a level that continues to put downward pressure on inflation.
• Investors now look forward to a slew of key economic reports from Japan, due on Friday, including Industrial Production, Retail Sales, and Tokyo inflation, which could provide further clarity on the BoJ’s monetary policy outlook.
• Friday’s economic docket also features the release of the US Personal Consumption Expenditure (PCE) Price Index – the Fed’s preferred inflation gauge. This would influence the USD and provide a fresh impetus to the USD/JPY pair. 

USD/JPY technical setup favors bears and supports prospects for emergence of fresh sellers at higher levels 

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range since the beginning of this week. This comes on top of the recent downfall from the year-to-date high touched in January and might still be categorized as a bearish consolidation phase. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone, suggesting that the path of least resistance for spot prices remains to the downside. 

Hence, any further move up could be seen as a selling opportunity near the 149.75-149.80 region and remain capped near the 150.00 psychological mark. A sustained strength beyond the latter, however, could trigger a short-covering rally and lift the USD/JPY pair further towards the 150.90-151.00 horizontal support breakpoint, now turned strong barrier. 

On the flip side, the 149.00 round figure now seems to protect the immediate downside ahead of the 148.60 region, or the multi-month low. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to the 148.00 mark en route to the next relevant support near the 147.35-147.30 area and the 147.00 round figure.