USD/JPY stabilises near 149.50

Recently, the Japanese yen has experienced notable fluctuations in the global currency market, influenced by multiple factors related to the monetary policies of both Japan and the United States.

The yen has stabilized around the mid-149.00 range against the US dollar, raising questions about its future direction amid current economic developments.

From my perspective, one of the key factors impacting the yen is the decline in Japanese government bond yields.

Last week, Bank of Japan Governor Kazuo Ueda indicated the bank’s readiness to increase government bond purchases if long-term interest rates surged sharply.

This statement led to a retreat in Japanese bond yields from their highest levels in over a decade, exerting pressure on the yen and causing it to weaken against the US dollar.

On the other hand, US Treasury yields have risen, strengthening the US dollar. This yield increase has made dollar-denominated assets more attractive to investors, boosting demand for the greenback and weakening the yen.

Additionally, global trade tensions—especially former US President Donald Trump’s threats of new tariffs—have reinforced the dollar’s status as a safe-haven currency.

However, I believe there are growing expectations that the Bank of Japan may move toward raising interest rates shortly, particularly as inflation accelerates in the country. In January, Japan recorded its highest inflation rate since the summer of 2023, increasing pressure on the central bank to tighten its monetary policy. These expectations could limit the yen’s losses and prevent a significant decline against the dollar.

From my analysis, the USD/JPY pair has shown relative strength after three consecutive days of gains. The pair rebounded strongly from the 151.00 area, where a previous resistance level turned into support, and the exchange rate climbed back above the 200-day moving average near 152.50/60. This performance suggests a potential continuation of the pair’s upward trend, especially as the yield differential between US and Japanese bonds favours the dollar.

That said, I believe investors should consider the possibility of intervention by the Bank of Japan in the foreign exchange market, which could alter these expectations. The central bank has previously signalled its readiness to intervene in the event of excessive or unjustified yen volatility. Therefore, traders should closely monitor BOJ statements and any potential policy shifts.

Moreover, global political and economic developments—such as trade tensions and US fiscal policies—could significantly impact yen and dollar movements. For instance, any escalation in trade conflicts could drive investors toward safe-haven assets, potentially strengthening the yen. Conversely, a de-escalation of tensions could support the dollar and add pressure on the yen.

Ultimately, it seems to me that the Japanese yen faces a mix of opposing factors shaping its future trajectory. While rising US bond yields and dollar strength support a bearish outlook for the yen, expectations of a BOJ rate hike and rising domestic inflation may counterbalance these losses. Therefore, investors should closely follow economic and political developments and react to any shifts that could influence the balance of power between the dollar and the yen in global markets.