The Japanese Yen (JPY) is gaining strength against a weaker US Dollar (USD), bringing the USD/JPY pair close to 145.00. This change is driven by expectations that the Bank of Japan (BoJ) will raise interest rates due to rising inflation, while the Federal Reserve (Fed) may cut rates by July. Japan’s Economy Minister’s planned trip to the US raises hopes for a trade agreement before the July 9 tariff deadline, which is boosting the Yen. The BoJ’s recent choice to slow bond purchase cuts and strong PMI data also support the JPY’s strength. Meanwhile, mixed PMI data from the US and hints of rate cuts from Fed officials weaken the Dollar.

Geopolitical Influences on USD/JPY

Geopolitical events, such as a potential ceasefire between Israel and Iran, add to the Yen’s attractiveness. Upcoming events, including Fed Chair Jerome Powell’s testimony and US economic data releases, will impact the USD/JPY pair. Currently, the pair struggles below the 100-hour Simple Moving Average, with 145.00 acting as a key support level and resistance near 146.00, which aligns with the 38.2% Fibonacci retracement level. The Dollar has seemed weaker lately, and with USD/JPY near 145.00, the market is starting to adjust to the changing policies between Japan and the US. Signs of Yen resilience emerge not just from market reactions but from multiple policy signals and changes in tone from central banks. Ueda’s recent cautious approach to bond purchases supports the idea that Japan may begin tightening, especially as inflation rises. The latest Japanese PMI data shows steady growth, backing up this outlook. Traders should remember this isn’t just a reaction to risk aversion; it has real economic fundamentals behind it. On the other hand, Powell and other Fed members continue to signal the possibility of sooner-than-expected interest rate cuts. Recent mixed US PMI data hasn’t shifted this trend. There’s a growing belief that July might show the Fed’s first clear sign of changing direction. This divergence is becoming more noticeable, prompting traders to unwind their long Dollar positions.

Diplomatic Engagement and Economic Strategies

At the same time, renewed diplomatic talks—especially Shindo’s upcoming visit—boost confidence in the Yen. While not directly tied to monetary policy, this visit, happening right before the tariff deadline, increases the likelihood of a deal that could help Japan’s economy, reducing the need for a weaker Yen. Technically, the Dollar is struggling. The pair faces challenges in moving above the 100-hour SMA and is slipping toward the 145.00 mark. If it falls below this level, there’s limited support before dropping into the mid-143.00 range. The upside remains restricted around the 146.00 barrier, which also coincides with the 38.2% Fibonacci retracement, seen as a temporary ceiling. With upcoming US economic data, including inflation reports and Powell’s next congressional appearance, further pullbacks in USD/JPY are possible. Any unexpected weakness in labor or housing data could reinforce the Fed’s need for a policy change, benefiting the JPY. We should think about short-duration strategies that fit with breakouts or sustained movements below the support level. However, a steady rebound above the SMA should be approached with caution. The key is to avoid jumping ahead of policy changes and instead closely monitor the central bank’s communication, which is becoming clearer. Create your live VT Markets account and start trading now.

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