USD/JPY hesitates around 148.60 with the US Dollar and the Yen on the defensive
- The US Dollar treads water against the Yen amid the positive risk sentiment.
- Political uncertainty and concerns about trade tariffs keep the JPY on its back foot.
- USD/JPY: A potential double top above 149.00 is a warning for bulls.
The Dollar is trading in a choppy and volatile manner against the Japanese Yen. The succession of Doji candles in the 4-hour chart highlights a hesitant market, as both the US Dollar and the Yen struggle amid positive market sentiment.
The broader trend remains bullish, but the double top above 149.00, printed earlier this week, displays a warning for bulls. However, the pair needs to break the 146.98 neckline to confirm a trend shift.
Growing political uncertainty is weighing on the JPY
The Yen is dropping across the board on Friday, amid increasing political uncertainty on growing concerns that Prime Minister Ishiba’s coalition might lose its majority in the upper house after Sunday’s elections. Investors are fearing a defeat that would lead to his resignation, leaving the door open to the opposition and its tax-cutting plans that might send the Yen significantly lower against its main peers.
Apart from that, the trade negotiations with the US remain stalled, with the August 1 deadline approaching. If a better deal is not reached, Japan’s exports to the US will face a 25% tariff, a significant setback for Japan's strongly trade-dependent economy.
The US Dollar, on the other hand, is not faring much better. The risk-on sentiment sparked by the bright corporate earnings seen on Thursday is weighing the US Dollar and US Treasury yields, and keeps USD/JPY upside attempts limited.
US tariffs are weighing on the US Dollar's recovery.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.