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Japanese Yen bulls seem reluctant amid trade jitters; USD/JPY remains below 148.00 ahead of US CPI

  • The Japanese Yen struggles to lure buyers amid rising trade tensions and reduced BoJ rate hike bets.
  • Domestic political uncertainty keeps the JPY bulls on the defensive amid a broadly firmer USD.
  • Traders now look forward to the US consumer inflation figures for some meaningful impetus.

The Japanese Yen (JPY) extends its sideways consolidative price move through the Asian session and remains close to a three-week low touched against a broadly retreating US Dollar (USD) earlier this Tuesday. The growing acceptance that the Bank of Japan (BoJ) would keep interest rates low for longer than it wants amid concerns about the economic fallout from higher US tariffs continues to undermine the JPY.

Furthermore, the optimism led by US President Donald Trump’s willingness to engage in trade negotiations turns out to be another factor acting as a headwind for the safe-haven JPY. However, hopes for a US-Japan deal before the August 1 deadline help limit deeper losses for the JPY. This, along with a modest USD pullback from a multi-week top ahead of the US consumer inflation figures, caps the USD/JPY pair.

Japanese Yen traders seem non-committed ahead of the crucial US CPI report

  • US President Donald Trump softened his stance on trade and told reporters at the White House on Monday that he was open to further trade negotiations. Trump added that Europe has expressed interest in pursuing a different kind of agreement.
  • Meanwhile, Trump’s 25% tariff on Japanese goods effective from August 1 could result in a loss of economic momentum and a cooler inflation outlook. This could potentially curb expectations for an immediate interest rate hike by the Bank of Japan.
  • Meanwhile, recent opinion surveys suggest that Japanese Prime Minister Shigeru Ishiba’s coalition may lose its majority at the upcoming upper house election on July 20. According to the Asahi newspaper, the LDP will likely win just around 35 seats.
  • The benchmark 10-year Japanese government bond (JGB) yield rose to 1.595% on Tuesday, a level unseen since October 2008, as investors brace for the possible loss of fiscal hawk Ishiba, straining Japan’s already frail finances.
  • This would further complicate the BoJ’s efforts to normalise its monetary policy, which, along with a turnaround in the global risk sentiment, is seen undermining the Japanese Yen and acting as a tailwind for the USD/JPY pair on Tuesday.
  • The US Dollar shot to its highest level since June 24 amid the growing acceptance that the Federal Reserve would keep interest rates elevated in anticipation of worsening inflation as a result of higher import taxes and a still resilient US labor market.
  • Hence, the focus remains glued to the release of the latest US consumer inflation figures, due later this Tuesday. The heading Consumer Price Index (CPI) is expected to rise 2.7% YoY in June, while the core gauge is seen coming in at 3.0% YoY.
  • Nevertheless, the crucial data would influence market expectations about the Fed’s rate-cut path and determine the near-term trajectory for the USD. Apart from this, trade developments should provide a fresh impetus to the USD/JPY pair.

USD/JPY bulls await sustained move beyond 148.00 amid constructive technical setup

The recent breakout through the 100-day Simple Moving Average (SMA) and a subsequent strength beyond the 147.00 mark was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought territory. This, in turn, suggests that the path of least resistance for spot prices remains to the upside and backs the case for an extension of a two-week-old uptrend. From current levels, the June swing high, around the 148.00 mark, could act as an immediate hurdle, above which the currency pair could test the 148.65 region (May swing high) before aiming to reclaim the 149.00 round figure.

On the flip side, any meaningful corrective slide could be seen as a buying opportunity near the 147.20-147.15 region. This is closely followed by the 147.00 mark, below which the USD/JPY pair could accelerate the fall towards the 146.60-146.55 region en route to the 146.00 round figure and the 100-day SMA, currently pegged near the 145.80 region. The latter should act as a key pivotal point and a convincing break below might shift the near-term bias in favor of bearish traders, paving the way for a decline towards the 145.50-145.45 area en route to the 145.00 psychological mark.

Tariffs FAQs

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.