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USD/JPY snapped a three-day slide on May 22, 2025, climbing 0.20% to 143.96 from a daily low of 142.80, as traders locked in profits on the yen’s safe-haven surge. Easing US Treasury yields and a slight dollar rebound countered fears over America’s $36 trillion debt pile, inflamed by President Donald Trump’s tax bill. Expert consensus warns that the Federal Reserve, under Chair Jerome Powell, and Japan’s central bank must tame volatility with steady policies. Without a clear break above 144.00, downside risks loom in this tense economic climate.
Yen’s Safe-Haven Run Hits Pause
After USD/JPY slumped to a two-week low of 142.80, fueled by yen demand amid Middle East tensions, profit-taking drove a rebound. US 10-year Treasury yields, dipping to 4.55%, eased dollar pressure, while the US Dollar Index (DXY) ticked up to 99.86. Japan’s rising bond yields, up since Tuesday, failed to sustain the yen’s rally. The 2019 Gulf crisis, which cut USD/JPY 3% in weeks, shows safe-haven flows can fade fast. Japan’s central bank, led by Governor Kazuo Ueda, needs to hold rates steady to avoid yen overreach, with PMI data due to guide sentiment.
US Fiscal Woes Weigh on Dollar
Trump’s $4 trillion tax bill, passed by the House, deepens the US debt crisis, worsened by Moody’s Aa1 downgrade. Despite upbeat US PMIs—Manufacturing at 52.3 and Services at 52.3—the dollar struggles as tariff-driven inflation, forecast to top 2% through 2027, keeps the Fed’s 4.25%-4.50% rates firm. The 2022 debt scare, which sank the dollar 2% against the yen, signals risks if fiscal policy stumbles. Powell must project disciplined oversight to shore up the dollar, balancing growth against price pressures, as housing data looms.
Technicals Flag Fragile Uptick
The Relative Strength Index, nearing 50, hints USD/JPY may be stabilizing but stays bearish. Breaking 144.00 could eye the Kijun-sen at 144.27, the 20-day SMA at 144.65, and 145.00. Slipping below 143.00 risks hitting 142.80 or May 6’s low of 142.35. The 2023 USD/JPY rally faltered at similar levels, urging caution. Traders should track Japan’s Machinery Orders and US Jobless Claims for momentum cues, as Middle East flare-ups could reignite yen demand.
Powell and Ueda need clear, data-driven moves to counter debt and geopolitical noise. USD/JPY’s bounce hinges on fading safe-haven flows, but US fiscal strain could drag it down. Investors should hedge with gold, given tariff and conflict risks. Past currency swings, like 2020’s, prove coordinated policy calms markets. Central banks must prioritize stability to keep USD/JPY from spiraling in this high-stakes economic storm.
