The USD/JPY currency pair is currently close to a two-week high, trading at 147.47 after gaining 120 pips. This increase is driven by rising Treasury yields observed this month. While there are concerns surrounding Trump’s tariff discussions with the EU, many view it as a tactic for negotiation. Positive U.S. economic data, particularly the recent non-farm payrolls report, has also influenced the currency movement. The Federal Reserve is taking a neutral approach despite some worries about employment. The upcoming U.S. Consumer Price Index (CPI) data might reignite inflation concerns.

Japanese Inflation Concerns

There are worries about inflation in Japan, but the trend suggests that USD/JPY might pull back. The pair could revisit levels seen around the U.S. presidential inauguration. Key resistance levels are the June high of 148.02 and the May high of 148.64. Changes in U.S. sentiment or reduced trade tensions could affect future movements. The recent rise in USD/JPY is primarily supported by increasing Treasury yields and a steady flow of positive economic news from the U.S. As yields climb, the dollar tends to strengthen, especially against the yen, which is usually more defensive. This rise largely comes from the market absorbing stronger job numbers released earlier this month, especially the surprising non-farm payrolls report. This fueled expectations that the U.S. economy still has strong momentum, despite some uncertainties in the labor market. However, central bankers in Washington haven’t rushed to change their outlook. They remain cautious about signaling any imminent rate changes, keeping traders focused on incoming data. Next, we will see the CPI reading from the U.S., which could raise inflation worries if it differs from expectations. If that occurs, we may see increased volatility in this currency pair.

External Factors and Market Sentiment

Additionally, there’s external noise in the market. Recent tariff comments, especially regarding EU trade, are perceived as part of a negotiation strategy rather than concrete policy directions. This perspective helps explain why the market hasn’t reacted in a risk-averse manner. Positioning hasn’t shifted significantly for now, but we must be mindful that such rhetoric could disrupt markets unexpectedly, especially if the tone changes. In Japan, inflation discussions have come up again, but there hasn’t been any decisive policy shift yet. This situation creates some uncertainty for the pair, but not enough to overshadow the overall strength of the dollar. Technical analysis shows that resistance is approaching levels seen in May and June, with 148.02 and 148.64 being crucial. Movement towards these levels may encounter stronger selling pressure. In terms of strategy, it’s important to recognize how closely tied this pair is to global risk sentiment. If the market turns more risk-averse—due to geopolitical issues, unexpected inflation news, or a reassessment of growth expectations—the yen may attract buyers seeking safety, which could push the pair lower. On the other hand, if recent optimism continues, the pair could climb higher. Right now, we’re closely observing daily closing prices. Sustained trading above 147.50 would indicate that broader market confidence is solid and could support a bullish outlook. However, any decline back to previous support levels must hold to avoid a deeper pullback. The general sentiment around the dollar will likely influence the next move. It’s essential to monitor event risks and changes in positioning, focusing not just on headlines but also on the market’s reactions. Create your live VT Markets account and start trading now.

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