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USD/JPY Price Forecast: Seems vulnerable amid US tariffs-inspired global flight to safety

  • USD/JPY retests YTD low as investors take refuge in safe-haven status amid recession fears.
  • Hopes for a US-Japan trade deal and divergent BoJ-Fed expectations contribute to the slide.
  • Traders now look forward to FOMC minutes for some impetus ahead of US inflation figures.

The USD/JPY pair remains under heavy selling pressure for the second consecutive day on Wednesday and retests the year-to-date low, around the 144.55 area during the early European session. The US tariffs-induced meltdown across the global financial markets intensified amid growing worries that an all-out global trade war would push the world economy into recession. Adding to this, a further escalation in tensions between the US and China – the world's two largest economies – continues to weigh on investors' sentiment and boosts demand for traditional safe-haven assets, including the Japanese Yen (JPY).

In fact, US President Donald Trump's sweeping reciprocal tariffs officially took effect this Wednesday, with China facing a massive 104% cumulative levies after an additional 50% hike announced on Tuesday. In fact, the White House press secretary Karoline Leavitt confirmed that the US will proceed with new tariffs on Chinese imports in response to Beijing's retaliatory 34% import fee on American products announced last week. The developments spark concerns about a broader economic slowdown, which, along with hopes for a US-Japan trade deal, boosts the JPY and exerts pressure on the USD/JPY pair.

After talking to Japan's Prime Minister Shigeru Ishiba earlier this week, Trump told reporters that we have a great relationship with Japan and we're going to keep it that way. Trump added that Japan is sending a team to negotiate on trade. US Treasury Secretary Scott Bessent, along with US Trade Representative Jamieson Greer, will lead the American delegation, while Ishiba's administration selected Economic Revitalization Minister Ryosei Akazawa to represent Japan in the tariff talks. Furthermore, the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates, further benefits the JPY.

The US Dollar (USD), on the other hand, attracts sellers for the second straight day amid rising bets that the Federal Reserve (Fed) will resume its rate-cutting cycle amid tariff threat to growth. According to the CME Group's FedWatch Tool, traders are currently pricing in over a 60% chance that the US central bank will lower borrowing costs in June and deliver five quarter basis points rate cuts by the end of this year. This keeps the USD depressed near a multi-month low set last week, which turns out to be another factor that contributes to the heavily offered tone around the USD/JPY pair and the downfall.

Moving ahead, investors on Wednesday will closely scrutinize FOMC meeting minutes. Furthermore, the release of the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, might provide cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair. Heading into the key releases, some repositioning trade assists spot prices to rebound around 100 pips from the daily low and climb back closer to the mid-145.00s. The fundamental backdrop, however, favors bearish traders.

USD/JPY daily chart

Technical Outlook

From a technical perspective, spot prices failed to find acceptance above the 148.00 mark earlier this week and the subsequent fall validates the negative outlook. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Some follow-through selling below the 144.55 area, or the multi-month low, reaffirm the bearish setup and drag spot prices to the 144.00 round figure.

On the flip side, any further recovery might now confront stiff resistance near the 146.00 mark. This is followed by the Asian session high, around the 146.35 region, which if cleared might trigger a fresh bout of a short-covering move and lift the USD/JPY pair to the 147.00 round figure en route to the 147.40-147.45 area. The momentum could extend further towards reclaiming the 148.00 mark en route to the weekly top, around the 148.15 zone. A sustained strength beyond the latter might shift the near-term bias in favor of bullish traders.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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