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The USD/JPY pair retreated to 145.00 on May 9, 2025, after failing to sustain gains above a one-month high of 146.20, driven by a softening US Dollar and mixed economic signals from the US. Japan’s robust March household spending data, up 2.10% year-over-year, bolstered the yen, while US stagflation fears and upcoming US-China trade talks added pressure on the Dollar. The US Dollar Index (DXY) dropped to 100.30, reflecting market doubts about recent trade deals, including the US-UK pact. This report explores the dynamics behind USD/JPY’s decline, Japan’s economic resilience, and the technical outlook for the pair.
The US Dollar weakened as investors reassessed the impact of the US-UK trade agreement, which, despite generating $6 billion in tariff revenue, failed to inspire confidence amid persistent 10% tariffs on most imports. The DXY fell to 100.30 from a high of 100.86, driven by a risk-on mood as the Dow Jones gained 1.6% to 41,113 and the S&P 500 rose 0.2% to 5,617. Critical US-China trade negotiations in Switzerland over the weekend, addressing tariffs capped at 145%, further clouded the Dollar’s outlook, with markets bracing for potential escalation if talks falter.
In the US, economic signals remain mixed, with the Federal Reserve highlighting stagflation risks as tariffs threaten to inflate prices while slowing growth and raising unemployment. Despite a solid Q2 GDP growth estimate of 2.30% SAAR, inflationary pressures (March’s 2.6% rate, April’s Prices Paid Index at 65.1) and a robust labor market (April’s 177,000 Nonfarm Payrolls, 4.2% unemployment) keep the Fed cautious, with rates steady at 4.25%-4.50%. Markets price in a 62% chance of a July rate cut, reflecting uncertainty as tariffs complicate the Fed’s dual mandate of price stability and maximum employment.
Japan’s economic data provided a counterpoint, with March household spending rising 2.10% year-over-year, surpassing forecasts of 0.20% and reversing the prior month’s 0.50% decline. This surge in consumer activity signals resilience in the Japanese economy, potentially easing pressure on the Bank of Japan to intervene in currency markets to support the yen. The yen’s relative strength against the Dollar underscores Japan’s improving domestic demand, contrasting with the US’s tariff-driven economic challenges.
Technically, USD/JPY’s bearish bias is evident as it trades near 145.00, with resistance at the 50-day EMA (146.16) and 50-day SMA (146.31), and longer-term pressure from the 100-day SMA (150.46) and 200-day SMA (149.57). Support levels at 144.82, 144.79, and 144.49 loom, with a break below 144.80 signaling further declines, while a move above 146.30 could spark a bullish reversal. The RSI at 52.54 remains neutral, and a MACD buy signal hints at mixed momentum. As trade talks and US economic risks unfold, USD/JPY’s trajectory hinges on Dollar strength and Japan’s economic momentum.
