Expectations of a Fed rate cut are rising, putting pressure on USD/JPY to return to range-bound fluctuations
2025-08-04 14:04:37
The yen came under pressure mainly due to the expected delay in the Bank of Japan's policy shift to hawkishness.
Market expectations for a Bank of Japan rate hike this year have quickly retreated after the Bank of Japan downgraded its economic outlook last week and expressed concerns about the impact of U.S. tariffs. BoJ Governor Kazuo Ueda emphasized the bank's "continuous assessment of data" and gave no indication of any near-term interest rate hike intentions.
"The defeat of Japan's ruling party in the local elections in July also increased the political pressure on the Bank of Japan to maintain loose monetary policy." This put pressure on the yen, pushing USD/JPY to stop falling and stabilize in the Asian session.
The US non-farm payroll data has raised questions about the credibility of the data and increased expectations of interest rate cuts, limiting the dollar's gains.
July's nonfarm payroll figures were only 73,000, significantly below expectations. Data for May and June were also significantly revised downward, with June's employment figure revised from 147,000 to just 14,000, dampening market confidence. "The data, showing a significant slowdown in the labor market, coupled with Trump's dismissal of a senior Census Bureau official, has undermined both the dollar's safe-haven status and the data's credibility."
The market currently predicts an over 80% probability of a September rate cut, bringing the cumulative rate cuts to 65 basis points by year-end. This, coupled with the impending resignation of Fed Governor Kugler, has triggered a plunge in US Treasury yields, putting continued selling pressure on the US dollar.
From a technical perspective, last Friday's sharp drop has broken through the 38.2% Fibonacci retracement level (from the July low to the 151 high), marking a bearish technical trigger. The current price is finding support around 146.75 (50% retracement level). A break below this level will target 146.00 or even the 61.8% retracement support area of 145.85.
Conversely, a rebound would require a breakout above the initial resistance level of 148.00, before testing the 148.60 resistance zone and then the key resistance levels of 149.00 and 149.50 (23.6% retracement and 200-day moving average). The overall technical structure is neutral to bearish, with bears dominating the downside. A rebound requires confirmation of sustained momentum.
Editor's opinion:
The USD/JPY pair faces a complex mix of bullish and bearish factors: on the one hand, the Bank of Japan's cautious stance is weakening the yen's rebound momentum; on the other hand, poor US economic data is reinforcing expectations of interest rate cuts, making it difficult for the dollar to maintain its strength. If the Federal Reserve indeed shifts to a rate-cutting cycle in September, coupled with rising risk aversion, the yen could regain support.
Market expectations for a Bank of Japan rate hike this year have quickly retreated after the Bank of Japan downgraded its economic outlook last week and expressed concerns about the impact of U.S. tariffs. BoJ Governor Kazuo Ueda emphasized the bank's "continuous assessment of data" and gave no indication of any near-term interest rate hike intentions.
"The defeat of Japan's ruling party in the local elections in July also increased the political pressure on the Bank of Japan to maintain loose monetary policy." This put pressure on the yen, pushing USD/JPY to stop falling and stabilize in the Asian session.
The US non-farm payroll data has raised questions about the credibility of the data and increased expectations of interest rate cuts, limiting the dollar's gains.
July's nonfarm payroll figures were only 73,000, significantly below expectations. Data for May and June were also significantly revised downward, with June's employment figure revised from 147,000 to just 14,000, dampening market confidence. "The data, showing a significant slowdown in the labor market, coupled with Trump's dismissal of a senior Census Bureau official, has undermined both the dollar's safe-haven status and the data's credibility."
The market currently predicts an over 80% probability of a September rate cut, bringing the cumulative rate cuts to 65 basis points by year-end. This, coupled with the impending resignation of Fed Governor Kugler, has triggered a plunge in US Treasury yields, putting continued selling pressure on the US dollar.
From a technical perspective, last Friday's sharp drop has broken through the 38.2% Fibonacci retracement level (from the July low to the 151 high), marking a bearish technical trigger. The current price is finding support around 146.75 (50% retracement level). A break below this level will target 146.00 or even the 61.8% retracement support area of 145.85.
Conversely, a rebound would require a breakout above the initial resistance level of 148.00, before testing the 148.60 resistance zone and then the key resistance levels of 149.00 and 149.50 (23.6% retracement and 200-day moving average). The overall technical structure is neutral to bearish, with bears dominating the downside. A rebound requires confirmation of sustained momentum.
Editor's opinion:
The USD/JPY pair faces a complex mix of bullish and bearish factors: on the one hand, the Bank of Japan's cautious stance is weakening the yen's rebound momentum; on the other hand, poor US economic data is reinforcing expectations of interest rate cuts, making it difficult for the dollar to maintain its strength. If the Federal Reserve indeed shifts to a rate-cutting cycle in September, coupled with rising risk aversion, the yen could regain support.
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