Yen Pressured by Trade Risk and BoJ Caution

Key Takeaways:

*Despite Fed dovishness, the BoJ’s reluctance to tighten policy—amid soft wage and inflation data—continues to weigh on yen strength.

*Renewed U.S. tariff threats targeting Japan undermine safe-haven demand and fuel headline-driven swings in USD/JPY.

*With market pricing in a September Fed cut, the dollar is softening—but yen upside is constrained without BoJ follow-through.

Market Summary:

The Japanese Yen remains under pressure as a confluence of monetary policy divergence, trade uncertainty, and soft domestic data curbs bullish momentum. While Fed rate cut bets are increasingly priced into the dollar, the yen’s upside is limited by the Bank of Japan’s cautious policy stance and rising geopolitical risk in the form of U.S. trade actions.

June’s wage growth in Japan undershot expectations at +2.5% YoY (vs. 3.2% forecast), reinforcing the BoJ’s argument that inflationary pressures remain insufficient for aggressive tightening. Governor Ueda continues to signal that further rate hikes are conditional on more robust and sustained wage and price trends, with swaps markets now assigning just 65% odds to a hike by year-end.

Political factors are also complicating the landscape. The Liberal Democratic Party’s electoral setbacks have clouded fiscal reform prospects, potentially delaying BoJ normalization. Meanwhile, U.S. President Donald Trump’s floated 15% tariff on Japanese goods has added a new layer of uncertainty, pushing USD/JPY higher amid risk aversion, though follow-through remains capped by broader dollar softness.

On the U.S. side, expectations for a September Fed rate cut remain elevated (Fed Fund Futures pricing in over 90% probability), following a soft ISM services print and downward payroll revisions. While this has kept the dollar broadly subdued, the yen has failed to capitalize meaningfully due to its own domestic headwinds and the erosion of safe-haven demand in an environment of resilient equity markets and improving geopolitical sentiment elsewhere.

For now, USD/JPY appears trapped with trade headlines and Fed signals providing the next directional cues. A formal imposition of U.S. tariffs on Japan could trigger renewed yen selling, while deeper Fed dovishness may offer some relief but only modestly so without a corresponding shift in BoJ tone.

Technical Analysis 

USDJPY, H4: 

USD/JPY is holding just above the ascending trendline support drawn from the July lows, last trading near 147.65. The pair continues to consolidate in a narrowing range, caught between rising trendline support and overhead resistance near the 148.30 level. While recent price action suggests a tentative bullish structure, upside momentum has clearly faded following the sharp rejection from the 149.80 high, and bulls now face a key test at the confluence of moving averages and horizontal resistance.

Momentum indicators are showing early signs of recovery, though they remain in neutral territory. The Relative Strength Index (RSI) is tracking near48, still below the 50 midline but showing a slight upward slope, suggesting weakening bearish pressure. Meanwhile, the MACD is hovering just above the signal line, with the histogram turning marginally positive. While not fully convincing, this subtle shift hints at a possible bullish turn which provided the trendline holds and price reclaims 148.00.

Overall, USD/JPY remains in a technical consolidation, with trendline support underpinning the pair while key resistance looms just overhead.Traders may look for a clean breakout or breakdown from this compression zone before committing to directional plays.

Resistance Levels: 147.70, 148.30

Support Levels: 147.40, 146.90