- The Japanese Yen attracts fresh buyers on Monday and snaps a two-day losing streak.
- An upward revision of Japan’s Q1 GDP reaffirms BoJ rate hike bets and boosts the JPY.
- The emergence of some USD selling exerts additional downward pressure on USD/JPY.
The Japanese Yen (JPY) sticks to its Asian session gains led by an upward revision of Japan’s Q1 GDP print, which reaffirmed bets that the Bank of Japan (BoJ) will continue raising interest rates. This, along with the emergence of some US Dollar (USD) selling, drags the USD/JPY pair below mid-144.00s at the start of a new week.
Traders, however, seem reluctant to place aggressive bets and opt to wait on the sidelines ahead of the US-China trade talks in London later today. Moreover, Friday’s stronger-than-expected US jobs data dampened hopes for imminent rate cuts by the Federal Reserve (Fed) this year, which supports the USD and the USD/JPY pair.
Japanese Yen remains supported by domestic data
- Japan’s Cabinet Office reported earlier this Monday that the economy registered no growth during the first quarter of 2025, against the 0.2% contraction initially estimated. The revised data further revealed that Japan’s economy contracted at a slower pace, by 0.2% annualized during the reported month, compared to the 0.7% contraction initially reported.
- Additional details showed that private consumption, which accounts for more than half of the Japanese economy, inched up by 0.1% during the January-March period versus a flat preliminary reading. This gives the Bank of Japan headroom to hike interest rates further this year and provides a modest lift to the Japanese Yen at the start of a new week.
- The US Dollar, on the other hand, struggles to capitalize on Friday’s move higher, led by the better-than-expected US Nonfarm Payrolls (NFP) report. The crucial US employment data showed that the economy added 139K new jobs in May, lower than the previous month’s downwardly revised print of 147K, though it was better than the 130K forecasted.
- Other details of the report showed that the Unemployment Rate held steady at 4.2%, as anticipated. Adding to this, Average Hourly Earnings remained unchanged at 3.9%, surpassing consensus estimates of 3.7%. This reinforced expectations that the Federal Reserve would hold interest rates steady at its upcoming meeting and boosted the USD.
- Top US and Chinese officials will meet in London on Monday for negotiations aimed at defusing the high-stakes trade dispute between the world’s two largest economies. US President Donald Trump said last week that a call with Chinese leader Xi Jinping was focused almost entirely on trade and resulted in a very positive conclusion.
- On the geopolitical front, Russian forces launched massive attacks on Ukraine’s second-largest city of Kharkiv with drones, missiles, and guided bombs. Moreover, Russia claimed that a tank division has reached the western border of Donetsk and is continuing its advance, signaling a serious escalation in the conflict amid stalled peace talks.
USD/JPY bears need to wait for break below 144.00
From a technical perspective, Friday’s breakout through a multi-day-old trading range was seen as a key trigger for the USD/JPY bulls. However, neutral oscillators on the daily chart make it prudent to wait for some follow-through buying beyond the 145.00 psychological mark, or a one-week high touched last Friday, before positioning for further gains. Spot prices might then climb to the 145.55-145.60 horizontal barrier en route to the 146.00 round figure and the May 29 swing high, around the 146.25-146.30 region.
On the flip side, the trading range resistance breakpoint, around the 144.00 round figure, now seems to protect the immediate downside. A convincing break below, however, might prompt some technical selling and drag the USD/JPY pair back towards the 143.50-143.40 area en route to the 143.00 mark and the next relevant support near the 142.70-142.65 horizontal zone. The latter should act as a pivotal point, which, if broken decisively, will set the stage for the resumption of the recent downfall from the May monthly swing high.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
