Japanese Yen Gains Momentum as Geopolitical Tensions Boost Safe-Haven Demand

USD/JPY Outlook as FOMC Meeting Looms and BoJ Maintains Dovish Stance

The Japanese Yen (JPY) strengthened for a second consecutive session on Monday as investors sought refuge in safe-haven assets amid escalating global geopolitical tensions. The USD/JPY pair declined to trade near the 144.00 mark during the early Asian session, pressured by renewed risk aversion and modest US Dollar (USD) weakness.

Geopolitical Risks Drive Yen Demand

The ongoing uncertainty surrounding US-China trade relations continues to dominate investor sentiment. While Beijing signaled openness to engage in tariff negotiations, US President Donald Trump’s unpredictable approach—highlighted by a new 100% tariff on all foreign-made movies—has fueled market caution.

Adding to the geopolitical strain are rising Middle East tensions. Israeli Prime Minister Netanyahu pledged retaliation after a Houthi missile landed near Israel’s Ben-Gurion Airport. Meanwhile, Iran warned of severe consequences if provoked. Simultaneously, Russian President Vladimir Putin reaffirmed Moscow’s military commitment in Ukraine, further amplifying global uncertainty and safe-haven demand.

BoJ Dovish Pause Limits Yen Upside

Despite the recent risk-driven rally, the Japanese Yen’s gains were tempered by the Bank of Japan’s (BoJ) dovish tone. At its latest policy meeting, the BoJ left interest rates unchanged and revised down its GDP and inflation forecasts for 2025. Market participants scaled back expectations of a near-term rate hike, keeping JPY bulls cautious.

However, Japan’s broadening inflation and rising wages could prompt policy tightening later in the year. Still, traders remain focused on this week’s Federal Open Market Committee (FOMC) decision for near-term USD/JPY direction.

US Dollar Pressured Ahead of FOMC

The US Dollar struggled to sustain gains from Friday’s strong Nonfarm Payrolls (NFP) report, which showed 177,000 jobs added in April—beating expectations of 130,000. The unemployment rate held steady at 4.2%, while average hourly earnings rose 3.8% year-over-year.

Although labor market resilience delayed Fed rate cut bets from June to July, the USD remains under pressure due to growing uncertainty over the economic impact of new tariffs and weakening inflation expectations.

USD/JPY Technical Analysis: Key Levels to Watch

• Resistance: 146.00 (50% Fibonacci level), followed by 146.60 and 147.00 (61.8% Fibo).
• Support: 144.00 psychological level, with further downside at 143.70 and 143.00.
• Daily indicators remain bullish, suggesting dips may be viewed as buying opportunities in the near term.
• A confirmed break above 146.00 could trigger a move toward 147.00, while sustained weakness below 144.00 may expose 142.65.

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Key Takeaway for Traders

With geopolitical risks escalating and the BoJ maintaining its dovish policy stance, the Japanese Yen is likely to remain supported in the short term. However, the FOMC decision and further clarity on US-China trade talks will be pivotal for USD/JPY direction in the coming days.

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