The Japanese Yen (JPY) is performing well in the first half of the European session on Friday, thanks to strong Household Spending data from Japan. This has sparked speculation about possible interest rate hikes by the Bank of Japan, causing the USD/JPY pair to stay below the mid-144.00s. There are worries about US trade policies, especially tariffs, which could affect Japan’s plans to normalize its monetary policy. Market activity is light because of the US Independence Day holiday, making traders cautious.

US Jobs and Economic Data

In June, the US added 147,000 new jobs, beating the expected 110,000. The Unemployment Rate dropped to 4.1%. However, wage inflation slightly decreased to 3.7%, falling short of predictions, and there are concerns over a new tax-cut and spending bill that may increase the federal deficit. The USD/JPY pair is navigating between key technical levels, with resistance near 145.25 and support around 144.20. If it breaks below this support, it may attract more bearish traders. On the flip side, resistance must be consistently broken for gains to continue. Tariffs, aimed at supporting local businesses, can affect economic relationships. Former President Donald Trump plans to use tariffs as part of his economic strategy, focusing on imports from Mexico, China, and Canada, which made up 42% of US imports in 2024. The Japanese Yen strengthened early in the European session on Friday, driven by better-than-expected household consumption data. This indicates a stronger domestic economy, supporting views that Japan’s central bank may consider another rate hike. Consequently, the USD/JPY currency pair struggled to rise, staying below 144.50. This Yen strength appears tied to strong consumer activity in Japan. Such data might encourage policy changes, especially as ultra-loose monetary settings are being reconsidered. However, trading is limited due to the US Independence Day holiday, reducing market liquidity and leading to less volatility. With fewer traders, even minor data releases have a larger impact, though this trend may not last.

Trade Policies and Market Impact

Traders should pay attention to developments in the US, where job growth has exceeded expectations. June’s addition of 147,000 jobs showcases strength in the labor market. However, the dip in wage inflation to 3.7% dampens any hawkish sentiment, easing some pressure on the Federal Reserve regarding rate decisions. Fiscal issues are also important, especially the potential financial strain from new tax cuts and spending. This concern isn’t just theoretical; a larger deficit could influence how policymakers manage interest rates and debt in the long run. This fiscal situation now impacts the overall strength of the dollar. On the USD/JPY chart, technical conditions are holding steady. The price remains within a defined range: resistance around 145.25 and support near 144.20. Traders focusing on this corridor may remain active. To achieve more directional clarity, we need either a sustained move above resistance or a clear drop below support. This zone is significant, reflecting areas where institutional orders are likely concentrated. While the Japanese Yen shows strength, it’s essential to consider external trade policies from Washington. Planned tariffs on major trading partners like China, Mexico, and Canada may cause changes across markets. Tariffs generally serve to protect domestic industries, but they can also introduce volatility in currency pairings depending on how others react. If these trade measures disrupt exchange flows, particularly in areas linked to Japanese exports, we might see more active positioning in USD/JPY trading. From past experiences, we’ve seen how currency markets respond to policy changes. The continuation of protectionist measures will likely keep hedgers engaged, especially in longer-term volatility. For traders focusing on directional strategies or volatility bets, it’s important not to solely react to headlines. Factors like liquidity conditions, economic releases, chart patterns, and geopolitical events are all significant influences on pricing. There are times to embrace breakout strategies and times to ignore the background noise – knowing when to do which will help distinguish constructive risk from mere speculation. Create your live VT Markets account and start trading now.

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