USD/JPY Analysis: Yen under pressure amid trade tensions, dovish BoJ stance
2025-08-01 18:01:50
The Japanese yen is currently facing a complex situation on Friday (August 1), affected by the dual influence of escalating global trade tensions and the dovish stance of the Bank of Japan (BoJ).
Despite a slight recovery in the yen on safe-haven demand, the yen remained near a four-month low against the dollar, with market dynamics driven by uncertainty over global trade policy and Japan's domestic economy.
Trade tariffs boost safe-haven demand for the yen
US President Trump recently signed an executive order imposing higher tariffs on major trading partners, including Japan, reducing tariffs on Japan to 15% from the previously threatened 25%. This move has heightened global trade uncertainty and reignited demand for safe-haven assets such as the Japanese yen, causing it to rebound slightly against the US dollar.
However, the dollar remained strong due to market expectations that the Federal Reserve will postpone its September rate cut and the strong outlook for the US economy, limiting the yen's gains. Currently, USD/JPY is trading around 150.53, reflecting the game between safe-haven flows and the strength of the US dollar.
Dovish Bank of Japan policy limits yen's upside
The Bank of Japan (BoJ) decided to keep interest rates unchanged at its July meeting, and Governor Kazuo Ueda's dovish comments further limited the yen's upside potential. Ueda emphasized the need to proceed cautiously with policy normalization and assess the impact of the new US-Japan trade agreement on the economy.
Although the Bank of Japan raised its core CPI forecast to 2.7% for fiscal 2025, it said it had no intention of raising interest rates in the near future, especially given the domestic political uncertainty caused by the Liberal Democratic Party's election defeat on July 20. This dovish stance has weakened the confidence of yen bulls.
The strong dollar and US economic data are attracting much attention
The dollar remained resilient as market expectations for a September rate cut by the Federal Reserve waned, putting further pressure on the yen. Recent U.S. economic data, including a 3% annualized GDP growth rate in the second quarter and a rise in the personal consumption expenditures (PCE) price index to 2.6% in June, reinforced the view that the Fed may delay cutting interest rates until at least October.
The upcoming US Non-Farm Payrolls (NFP) report is expected to show 110,000 new jobs added in July and this data will be a key driver of USD/JPY price action. A strong reading could see the dollar rally further.
Technical analysis: USD/JPY poised for further breakout
(Source of USD/JPY daily chart: Yihuitong)
From a technical perspective, USD/JPY has broken above its 200-day Simple Moving Average (SMA) for the first time since February, marking a significant bullish breakout. Currently, the pair is trading below the 151 resistance level, a key juncture.
Momentum indicators are showing bullish signals: the relative strength index (RSI, 14) and the moving average convergence-divergence (MACD) are moving upwards in positive territory and showing no signs of overbought, which supports a buy-on-dip strategy.
If the non-farm payroll report is strong, USD/JPY could break through the 151 level, with upside targets at 152.40 and the February high of 154.80, depending on traders' risk-reward preferences.
On the other hand, if the non-farm payroll data disappoints, it may trigger a correction. The bears will first target the 200-day SMA (149.55), followed by the support levels of 149.00 and 147.95. The psychological level of 150.00 may become a short-term buying opportunity. Unless the 200-day SMA is decisively broken, the downside risk is limited.
At 17:45 Beijing time, the USD/JPY exchange rate was 150.515/524, down 0.14%.
Despite a slight recovery in the yen on safe-haven demand, the yen remained near a four-month low against the dollar, with market dynamics driven by uncertainty over global trade policy and Japan's domestic economy.
Trade tariffs boost safe-haven demand for the yen
US President Trump recently signed an executive order imposing higher tariffs on major trading partners, including Japan, reducing tariffs on Japan to 15% from the previously threatened 25%. This move has heightened global trade uncertainty and reignited demand for safe-haven assets such as the Japanese yen, causing it to rebound slightly against the US dollar.
However, the dollar remained strong due to market expectations that the Federal Reserve will postpone its September rate cut and the strong outlook for the US economy, limiting the yen's gains. Currently, USD/JPY is trading around 150.53, reflecting the game between safe-haven flows and the strength of the US dollar.
Dovish Bank of Japan policy limits yen's upside
The Bank of Japan (BoJ) decided to keep interest rates unchanged at its July meeting, and Governor Kazuo Ueda's dovish comments further limited the yen's upside potential. Ueda emphasized the need to proceed cautiously with policy normalization and assess the impact of the new US-Japan trade agreement on the economy.
Although the Bank of Japan raised its core CPI forecast to 2.7% for fiscal 2025, it said it had no intention of raising interest rates in the near future, especially given the domestic political uncertainty caused by the Liberal Democratic Party's election defeat on July 20. This dovish stance has weakened the confidence of yen bulls.
The strong dollar and US economic data are attracting much attention
The dollar remained resilient as market expectations for a September rate cut by the Federal Reserve waned, putting further pressure on the yen. Recent U.S. economic data, including a 3% annualized GDP growth rate in the second quarter and a rise in the personal consumption expenditures (PCE) price index to 2.6% in June, reinforced the view that the Fed may delay cutting interest rates until at least October.
The upcoming US Non-Farm Payrolls (NFP) report is expected to show 110,000 new jobs added in July and this data will be a key driver of USD/JPY price action. A strong reading could see the dollar rally further.
Technical analysis: USD/JPY poised for further breakout
(Source of USD/JPY daily chart: Yihuitong)
From a technical perspective, USD/JPY has broken above its 200-day Simple Moving Average (SMA) for the first time since February, marking a significant bullish breakout. Currently, the pair is trading below the 151 resistance level, a key juncture.
Momentum indicators are showing bullish signals: the relative strength index (RSI, 14) and the moving average convergence-divergence (MACD) are moving upwards in positive territory and showing no signs of overbought, which supports a buy-on-dip strategy.
If the non-farm payroll report is strong, USD/JPY could break through the 151 level, with upside targets at 152.40 and the February high of 154.80, depending on traders' risk-reward preferences.
On the other hand, if the non-farm payroll data disappoints, it may trigger a correction. The bears will first target the 200-day SMA (149.55), followed by the support levels of 149.00 and 147.95. The psychological level of 150.00 may become a short-term buying opportunity. Unless the 200-day SMA is decisively broken, the downside risk is limited.
At 17:45 Beijing time, the USD/JPY exchange rate was 150.515/524, down 0.14%.
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