Title: USD/JPY Extends Gains Amid Market Focus on US Trade Policy and Inflation Outlook
Original Analysis by Anil Panchal via FXStreet
The USD/JPY currency pair continues to advance, with the Japanese Yen under pressure as traders digest economic updates and monitor the shifting stance of US tariff policies under the Biden administration. As of early Asian hours on Friday, the USD/JPY pair holds steady near 158.80, testing key technical levels while remaining subject to macroeconomic and geopolitical drivers.
Highlights:
– USD/JPY continues to rise, trading close to 158.80
– Focus remains on US inflation data and Fed’s future interest rate policy
– White House proposes new tariff measures targeting certain countries and industries
– Japanese authorities maintain watch over FX volatility but refrain from immediate intervention
The US Dollar’s strength persists against the Japanese Yen, fueled by cautious optimism around US economic growth and expectations surrounding Federal Reserve policy. At the same time, market participants are adjusting to evolving trade measures promoted by the Biden administration, most notably a push for increased tariffs in sensitive industrial sectors such as steel and aluminum.
Japanese Yen Pressured by Multiple Factors
Several fundamental and technical elements are contributing to the continued downward pressure on the Japanese Yen:
– A wide interest rate differential between the US Federal Reserve and the Bank of Japan (BoJ), as the BoJ maintains an ultra-loose monetary stance
– Expectations of prolonged higher interest rates in the US due to persistent inflation
– Increased safe-haven inflows into the US Dollar amid global political and economic uncertainty
While Japan’s economic data has shown marginal improvement, the BoJ’s insistence on maintaining its accommodative policy tools keeps the Yen vulnerable. Recent comments from BoJ officials suggest no immediate pivot away from ultra-dovish settings, even as core inflation slightly exceeds the 2 percent target.
US Tariff Policy in Focus
The Biden administration’s renewal of certain Trump-era tariffs on aluminum and steel has sparked renewed interest in global trade implications:
– A new proposal looks to increase tariffs on steel and aluminum to up to 25 percent for countries not compliant with market-oriented reforms
– The administration indicated that China remains a specific target of such tariffs, in line with its broader goal of countering state-subsidized industrial expansion
– Businesses and market participants are analyzing the potential inflationary impact of such tariffs in the months ahead
These policy changes could support the US Dollar if they are seen as fostering domestic industrial strength. However, they also risk reigniting inflationary pressures, which may complicate the Federal Reserve’s interest rate decisions for the remainder of the year.
Federal Reserve’s Direction Remains Data-Dependent
The market continues to gauge how upcoming inflation data will influence the direction of US monetary policy. The Consumer Price Index (CPI) report released earlier this week showed mixed signals about inflation persistence. Core inflation fell slightly, yet broader price pressures remain sticky:
– Year-over-year CPI remains above the Fed’s 2 percent economic target
– Wage inflation and services inflation continue to be major contributors
– Market participants have dialed back bets on rate cuts in the near term
The Fed’s June meeting minutes, due to be released soon, could offer further insight into how officials view inflation risks and asset market valuations. Recent Fed speakers have reinforced a cautious tone, emphasizing the need to see further data before initiating a rate-cutting cycle.
Technical Analysis: USD/JPY Holds in Bullish Territory
From a technical standpoint, USD/JPY continues to trade within a bullish pattern, extending gains for the third consecutive session.
Key Technical Points:
– The pair is hovering near the 158.80 resistance level, approaching psychological resistance around 159.00
– Immediate support lies at the 157.40 region, followed by the 50-day Simple Moving Average (SMA) near 156.30
– Momentum indicators such as the Relative Strength Index (RSI) continue to show favorable bullish sentiment without indicating significant overbought
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