Yen Gains as Fed Rate Cut Bets and Tariff Uncertainty Pressure Dollar

The USD/JPY pair retreated toward the 143.00 zone on Thursday, erasing earlier gains as renewed US Dollar weakness took hold. Speculation about a Federal Reserve interest rate cut in June resurfaced, fueled by dovish comments from a Fed official who emphasized a data-driven approach and potential action if economic indicators warrant it. Adding to the Dollar’s woes, confusion over US-China trade policies stirred market uncertainty. Despite a cautiously upbeat mood in US equities, driven by strong economic data, the Japanese Yen outperformed most major currencies, bolstered by declining US Treasury yields and persistent safe-haven demand.

A flicker of optimism emerged from US signals of a softer stance on trade with China, with suggestions of possible tariff reductions. However, a senior US official quickly tempered expectations, noting that no formal offer had been extended and current tariff levels may be unsustainable. This mixed messaging clouded investor sentiment, dragging the US Dollar Index below 99.50. On the economic front, US Durable Goods Orders for March soared 10.4%, largely due to transportation, though the core reading remained flat at 0.0%. Weekly Initial Jobless Claims edged up to 222,000, hinting at a slight softening in the labor market, which further fueled rate cut expectations.

In Japan, focus shifted to upcoming tariff negotiations in Washington, with concerns lingering over unfavorable terms for Japanese automobile and steel exports. Despite these challenges, the Bank of Japan’s hawkish stance continues to provide a backbone for the Yen, distinguishing it among major central banks. The USD/JPY pair faces technical resistance near 143.05 and 145.10, with support levels at 142.45 and 142.26. As trade tensions and monetary policy debates unfold, the Yen’s strength reflects a market grappling with uncertainty and shifting economic signals.