- USD/JPY is trading in a narrow range on Tuesday, following a nearly 2% surge the previous day, bolstered by a stronger US Dollar amid receding trade tensions.
- The Bank of Japan is signaling its continued commitment to a gradual normalization of monetary policy, viewing current US tariffs as short-term disruptions with a limited impact on long-term inflationary pressures.
- From a technical perspective, the USD/JPY pair is encountering resistance at 148.65, with key support levels identified at the 50-day Exponential Moving Average (EMA) and further downside risk extending towards 145.00 and 142.00.
The Japanese Yen (JPY) is exhibiting relative stability, trading near the 148.00 level against the US Dollar (USD) on Tuesday, pausing after a significant upward movement in the preceding session. Despite this brief consolidation, the US Dollar maintains its underlying strength, primarily fueled by a perceived de-escalation in trade tensions between the United States and China. Recent discussions between negotiators from both nations in Switzerland resulted in an agreement to reduce tariffs to 30% on US imports from China and 10% on Chinese imports, for a 90-day period. This development has contributed to a restoration of investor confidence and a renewed appetite for risk assets. Concurrently, Japan appears to be maintaining a firm stance in its ongoing tariff negotiations with the US, potentially adopting a strategy of delaying tactics in anticipation of domestic pressures within the US leading to a more favorable agreement. To date, these discussions have not yielded any substantial breakthroughs.
On the Japanese monetary policy front, the Bank of Japan (BoJ) is maintaining a cautiously hawkish outlook, despite increasing concerns surrounding trade-related headwinds. During a parliamentary address on Tuesday, BoJ Deputy Governor Shinichi Uchida stated that the central bank anticipates continued increases in both wages and prices, reaffirming the board’s assessment that underlying inflationary pressures remain intact. Mr. Uchida acknowledged that while US tariffs could potentially dampen near-term economic growth, the BoJ intends to proceed with gradually raising interest rates if the current economic and inflation outlook evolves in line with current projections. This stance suggests a divergence from other major central banks that are considering or have already implemented interest rate cuts.
This policy trajectory aligns with the key takeaways from the BoJ’s April 30–May 1 policy meeting summary, which characterized the potential impact of tariffs as short-term shocks with a limited long-term impact on either inflation or the nation’s growth potential. Nevertheless, policymakers underscored the importance of maintaining a flexible approach and closely monitoring any emerging downside risks, given the persistent uncertainties in the global economic landscape.
Market participants are now keenly awaiting the release of the US Consumer Price Index (CPI) data for April, scheduled for release later in the trading day. Consensus estimates among economists suggest that the headline CPI will register a 0.3% increase on a month-over-month basis, maintaining an annual rate of 2.4%. The core CPI, which excludes volatile food and energy prices, is also anticipated to increase by 0.3% in April, holding steady at 2.8% year-over-year. These inflation figures will be closely scrutinized by the Federal Reserve as it assesses the appropriate course for monetary policy in the coming months.
USD/JPY consolidates near 148.00, bulls eye 148.65 breakout while key support holds above 145.00
From a technical standpoint, the USD/JPY pair decisively breached the 50-day Exponential Moving Average (EMA) on Monday, signaling a potential shift in momentum. However, the pair encountered intraday resistance on Tuesday at the previous day’s high of 148.65, resulting in a temporary pullback. A sustained move above this resistance level could pave the way for a rally towards the psychologically significant 150.00 level, which closely aligns with the 200-day EMA at 149.64 and the swing highs observed in April.
Conversely, on the downside, the 50-day EMA is now providing immediate support in the vicinity of 146.30. A break below this level could shift the focus towards the 145.00 psychological level, potentially triggering further selling pressure. Failure to maintain support above that zone could attract increased selling activity, potentially exposing the previous week’s low around the 142.00 region.
The Relative Strength Index (RSI) on the daily chart is trending upwards, approaching overbought territory, but currently sits at 59.68, suggesting continued, albeit moderating, bullish momentum. Traders will be closely monitoring the RSI for signals of overbought conditions, which could presage a potential reversal.
