Japanese Yen Weakens Against US Dollar as Risk Sentiment and Policy Divergence Weigh

The Japanese Yen (JPY) continued to lose ground during Friday’s Asian session, as market sentiment shifted in favor of the US Dollar (USD). Amid mixed signals from the Bank of Japan (BoJ) and a resurgence in global risk appetite, the USD/JPY pair rebounded from key support near 146.70, rising on fresh dollar demand.

BoJ Policy Signals Create Uncertainty

The Bank of Japan’s July meeting Summary of Opinions, released earlier today, suggested that policymakers remain cautious amid tariff-related uncertainties. Despite hints at a potential rate hike before year-end, concerns about Japan’s slowing economic momentum and subdued inflation could delay any decisive moves. Household spending data released this week showed a sharp 5.2% month-over-month decline in June—its steepest drop since early 2021—further dimming the outlook for rate tightening.

Risk-On Mood Pressures Yen

Japanese equity markets surged, with the Topix breaching the 3000 mark for the first time and the Nikkei 225 hitting a multi-week high. This rally in risk assets reduced demand for traditional safe havens like the Yen. The broader upbeat risk sentiment, coupled with stronger US equity futures, added downward pressure on JPY.

Dollar Finds Support But Faces Headwinds

The US Dollar Index (DXY) rebounded modestly to trade near 98.10. While this helped support USD/JPY, expectations of a September rate cut from the Federal Reserve limited the greenback’s upside potential. The likelihood of a 25-basis-point rate cut next month rose to 93%, fueled by weak labor market data. Initial jobless claims rose to 226,000—exceeding expectations—and reinforced the view that the Fed will ease policy sooner rather than later.

Adding political uncertainty to the mix, President Trump nominated Stephen Miran to the Fed Board and is reportedly considering candidates to replace Jerome Powell as Fed Chair. These developments have raised concerns about the Fed’s independence and added to investor caution.

USD/JPY Technical Analysis: Key Levels in Focus

Technically, USD/JPY continues to trade within a tight weekly range. The 146.70-146.75 zone acts as strong support, bolstered by the 200-period SMA and the 50% Fibonacci retracement of July’s rally. A breakdown below this area could open the door toward 146.00 and potentially 145.00.

On the upside, the 147.75–147.80 region marks the 38.2% Fibonacci level and stands as immediate resistance. A sustained move above 148.00 could target 148.50, with a further extension toward the 149.00 handle.

Outlook: Mixed Signals Call for Caution

With no major US economic releases scheduled for today, all eyes will be on upcoming speeches from key Federal Open Market Committee (FOMC) members. Traders should also monitor broader risk trends and geopolitical developments—especially tariff-related headlines—as these could sway both JPY and USD sentiment.

Stay updated with Daily Forex Pakistan.