The Japanese yen has recently recorded notable gains against the U.S. dollar, benefiting from a combination of economic and market factors that have significantly pressured the dollar’s performance.
The continued decline in the USD/JPY pair cannot be interpreted as a temporary technical move or a simple correction—it reflects a deeper shift in sentiment and economic fundamentals.
In my view, the market has begun to price in a new scenario that highlights the diminishing appeal of the dollar, especially as its yield advantage and the relative policy divergence start to fade.
The 0.68% drop in USD/JPY to 145.17 underscores a clear wave of risk aversion, driven by growing investor scepticism toward the sustainability of the U.S. economic momentum.
The economic data released on Thursday offered unmistakable signs of emerging weakness.
Retail sales rose by only 0.1%, which, despite beating expectations, fell short of the level needed to sustain robust consumer spending, the backbone of U.S. growth. More concerning was the 0.5% monthly decline in the Producer Price Index (PPI), signalling a broader slowdown in inflation that could push the Federal Reserve into a quicker reassessment of its policy stance.
In my opinion, the dovish tone conveyed in Jerome Powell’s remarks marked a pivotal shift this week. The Fed Chair’s suggestion that inflation is developing “more favorably” implicitly signals that the tightening cycle may have reached its end—and that rate cuts could soon be on the table. This is not a marginal adjustment; it is a wholesale realignment of market expectations that is prompting traders to reprice assets in ways that strengthen the yen and weigh further on the dollar.
From a yield perspective, we are already seeing the impact of this shift reflected in the bond market, with the 10-year U.S. Treasury yield falling to 4.45%. This drop erodes the dollar’s relative appeal as a high-yielding asset and boosts the yen’s attractiveness as a haven, especially amid heightened global risk aversion. In my analysis, this narrowing of the yield spread between the two currencies is a crucial driver of capital flows and open position adjustments across the markets.
Attention now turns to Japan’s Q1 GDP data, which is scheduled for release shortly. While forecasts point to a modest 0.1% contraction, any upside surprise could deepen downward pressure on the USD/JPY pair. A stronger-than-expected reading would be interpreted as indirect support for the Bank of Japan to maintain a less accommodative stance, possibly even laying the groundwork for eventual policy normalisation later in the year. Under such conditions, the U.S. dollar would be left with little defence against strong selling momentum.
From my analytical perspective—anchored in momentum indicators and structural changes in market expectations—the current move in USD/JPY does not appear to be fleeting. Rather, it represents the beginning of a broader correction that may target key support levels below 145, possibly extending toward 143.50 in the near term if U.S. data continues to weaken and the Fed maintains a dovish tone. With Japan now playing a more active role in influencing the pair via its growth data, the balance increasingly tilts in favour of the yen, particularly in a climate marked by geopolitical tensions and economic uncertainty.
Based on the above, I believe the most likely path forward is continued downside in USD/JPY, with only minor short-term corrections within technical ranges. A return to levels above 147 appears unlikely unless U.S. Treasury yields rebound sharply or American economic data deliver unexpectedly strong results. Until then, the yen stands to benefit the most from the shifting global sentiment and the gradual pivot in central bank policy direction.
Technical analysis of ( USDJPY ) prices
The USD/JPY chart reflects clear technical pressure following a decisive break below a key support zone near the 146.10 level, accompanied by a failed attempt to reclaim the 145.88 minor resistance and moving average. This failure highlights weakening bullish momentum and confirms the pair’s entry into a descending sub-channel within the broader trend. Such a setup increases the probability of continued downside in upcoming sessions, especially amid growing flows into safe-haven assets and a global decline in risk appetite.
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