Key Highlights:
- Japanese Yen pulls back slightly after hitting multi-week highs, but bullish sentiment remains intact.
- Strong Tankan Survey boosts speculation of further BoJ rate hikes.
- Risk appetite and stalled US-Japan trade talks limit further JPY gains.
- Fed rate cut expectations continue to weigh on the US Dollar.
Yen Remains Firm Despite Pullback, USD/JPY Faces Heavy Resistance
The Japanese Yen (JPY) slightly retreated on Tuesday from a three-week high against the US Dollar (USD), with USD/JPY recovering roughly 40 pips from earlier lows. However, the overall bullish momentum for the Yen remains intact, backed by growing expectations of Bank of Japan (BoJ) tightening.
Investors absorbed comments from US President Donald Trump signaling potential new tariffs on Japan, while sentiment was further dampened by stalled trade talks. Despite these headwinds, the JPY is supported by signs of persistent inflation in Japan and the possibility of further BoJ rate hikes.
BoJ’s Tankan Survey Sparks Hawkish Outlook
Japan’s Tankan Survey for Q2 reflected growing business optimism. The Large Manufacturers Index rose to 13.0, beating expectations, and firms now project inflation to average 2.3–2.4% over the next five years—well above the BoJ’s 2% target. This strengthens market conviction that the BoJ could continue raising rates to curb inflation.
In contrast, the US Federal Reserve is leaning dovish. Markets now assign a 74% chance of a rate cut by September, especially as recent data showed a 0.4% drop in personal income and declining personal spending in May.
US-Japan Trade Talks Stall; Tariff Risks Linger
Trade tensions flared after Japan’s top negotiator, Ryosei Akazawa, returned from Washington with no major progress. President Trump signaled frustration, threatening a 25% tariff on Japanese autos and criticizing Japan’s reluctance to buy US rice. He also hinted that talks could be scrapped entirely before the July 9 deadline.
These developments, combined with the ongoing political turmoil in Washington over Trump’s massive $3.3 trillion spending bill, add to uncertainty around the US Dollar.
USD Outlook: Data-Heavy Week Ahead
The US Dollar continues to face pressure, declining 2.6% in June alone. Traders now turn their attention to a crucial data lineup this week, including ISM Manufacturing PMI and JOLTS later today. However, the spotlight remains on Friday’s Nonfarm Payrolls (NFP) report, which could determine the Fed’s near-term rate path.
USD/JPY Technical View: Key Resistance at 144.40, Support at 142.70
Short-term resistance: 144.00 – 144.40 (200-SMA H4)
Support levels: 143.00, followed by 142.70
Technically, USD/JPY remains under pressure after breaking below its 200-SMA on the 4-hour chart. Momentum indicators suggest a bearish bias, and a drop below 143.00 could trigger a further slide toward the 142.70 zone.
On the upside, any bounce is expected to face strong resistance at the 144.40 level. Only a clean break above this zone would challenge the 145.00 handle, opening room for short-covering gains.
Bottom Line:
With BoJ tightening expectations rising and Fed policy turning dovish, the Yen is likely to remain supported in the near term. However, geopolitical risks and US macro data could inject volatility into the USD/JPY pair, with the next directional move hinging on the NFP report and central bank signals.
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