Japanese Yen Weakens Against USD as Policy Uncertainty and Global Sentiment Favor USD/JPY

The Japanese Yen (JPY) remains subdued against the US Dollar (USD) on Tuesday, struggling to make significant gains as mixed Bank of Japan (BoJ) rate hike signals and a positive global risk mood weigh heavily. The USD/JPY pair has surged to a one-week high, edging closer to the mid-148.00s, as market participants weigh in on the potential delay of a BoJ rate hike and the ongoing bullish market sentiment.

BoJ’s Mixed Signals and USD/JPY Surge

Traders seem cautious as uncertainty surrounding the Bank of Japan’s (BoJ) policy outlook lingers. While the BoJ has recently revised its inflation forecast and left the door open for potential rate hikes, domestic political instability and concerns over the effects of escalating US tariffs on Japan’s economy are dampening optimism. These factors, combined with bullish global sentiment, continue to support USD/JPY‘s upward momentum, pushing the pair higher throughout the Asian session.

A Divergence Between Fed and BoJ Policy Expectations

At the same time, there is a clear policy divergence between the BoJ and the Federal Reserve (Fed). The US Fed remains dovish, with rising bets on rate cuts in the coming months. Following disappointing Nonfarm Payrolls (NFP) data and dovish remarks from Fed officials, traders are pricing in nearly 90% odds of a September rate cut. This contrasts with the BoJ, which remains focused on controlling inflation and is more likely to raise rates if growth continues to meet its expectations.

The Impact of Inflation Data and Political Uncertainty

Data released last week showed that real wages in Japan fell for the sixth consecutive month, fueling concerns about a consumption-led recovery. Furthermore, there’s growing uncertainty regarding Japan’s fiscal health, especially after the ruling party’s loss in the upper house election.

However, global equity markets continue to climb, with US and Japan indices showing strong performance despite rising tariffs, further eroding demand for safe-haven currencies like the JPY.

Outlook for USD/JPY: Technical Breakouts and Fed Influence

Looking ahead, USD/JPY traders will keep an eye on the upcoming US inflation data, with the Consumer Price Index (CPI) scheduled for release. If inflation numbers come in hotter than expected, the Fed’s rate outlook could shift, providing fresh momentum for the USD/JPY pair. Additionally, speeches from influential FOMC members will add to the directional bias for USD/JPY as market participants adjust their positions based on Fed rhetoric.

Technically, the USD/JPY pair has cleared the 147.75-147.80 resistance zone, which aligns with the 38.2% Fibonacci retracement level of the July rally. A sustained break above the 148.00 mark would clear the path for further upside toward the 149.00 region, with the 23.6% Fibonacci retracement level offering the next key target.

On the downside, the 148.00 level remains key support. Any drop below this level could invite further selling pressure, with potential for the pair to test 147.00 or lower levels.

Conclusion

The USD/JPY remains in a bullish phase, driven by the Fed’s dovish stance and mixed BoJ signals. Traders are waiting for clearer cues from US inflation data and BoJ comments, but the overall sentiment points to further upside for USD/JPY. As long as Fed rate cut expectations persist, the USD could continue to outperform the JPY, further solidifying the bullish outlook for USD/JPY in the near term.

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