USD/JPY dips below support as the battle between safe-haven currencies persists
- USD/JPY slips below 144.00 as policy divergence and fiscal concerns weigh on the Greenback.
- US President Donald Trump waits for the House of Representatives to approve his “Big Beautiful Bill”.
- Japan’s hawkish shift and potential rate increases lift demand for safe-haven Yen.
The US Dollar (USD) continues to weaken against the Japanese Yen (JPY), as shifting economic conditions and central bank outlooks reshape expectations for both currencies.
At the time of writing, the USD/JPY pair has broken below the key psychological level of 144.00, a former support level that now acts as resistance, highlighting the strengthening bearish sentiment surrounding the Greenback.
One of the primary catalysts behind the recent USD weakness is the credit rating downgrade issued by Moody’s on Friday, which followed similar actions by S&P and Fitch. The downgrade from AAA to AA1 reflects growing concerns about the US’s long-term fiscal trajectory, particularly in light of President Donald Trump’s proposed “One Big Beautiful Bill Act.”
The bill, which seeks to extend and expand Trump-era tax cuts, could increase the US deficit by as much as $3.8 trillion over the next decade, according to the Congressional Budget Office (CBO). As investors digest the implications of this legislation, sentiment toward the US Dollar has turned cautious, especially given its potential to disrupt debt markets and force a reevaluation of US creditworthiness.
Meanwhile, in Japan, the Yen is benefiting from both its traditional safe-haven appeal and a shifting domestic policy landscape. The Bank of Japan (BoJ), which has long maintained ultra-loose monetary policy, has recently shown a greater willingness to normalize rates in response to persistent inflation and rising wages. Comments from BoJ officials have suggested that the central bank is preparing for a potential rate hike later this year, marking a significant departure from its historically dovish stance.
Adding to this momentum, Japanese Prime Minister Kazuo Ueda has reiterated the importance of addressing the wide interest rate differentials between Japan and the United States, which have historically weighed on the Yen. By narrowing these differentials, Japan could help support its currency and reduce imported inflation, which remains a concern despite improving domestic demand.
With these developments in play, the USD/JPY pair is likely to remain volatile. Traders will continue to monitor upcoming US economic data, Fed commentary, and any progress on the House vote regarding Trump’s tax bill. At the same time, market attention will be fixed on BoJ policy signals and fiscal commentary from Japanese officials. In the near term, the bearish pressure on USD/JPY appears intact, particularly if risk sentiment favors safer assets like the Yen.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Tammy Da Costa, CFTe®
FXStreet
Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.
