JPY struggles to build on intraday gains against USD amid positive risk tone

• The Japanese Yen attracts some dip-buyers amid fading optimism over the US-China trade deal.
• Bets that the BoJ will continue raising interest rates in 2025 further lend support to the JPY.
• Dovish Fed expectations cap the USD recovery from a multi-year low and weigh on USD/JPY.

The Japanese Yen (JPY) sticks to its positive bias through the Asian session on Thursday as fading hopes for a quick resolution to the US-China tradeoff underpin demand for traditional safe-haven assets. Furthermore, expectations that Japan will strike a trade deal with the US and bets for more interest rate hikes by the Bank of Japan (BoJ) turn out to be other factors that lend some support to the JPY. Apart from this, a modest US Dollar (USD) downtick keeps the USD/JPY pair depressed below the 143.00 round-figure mark.

Meanwhile, signs of receding trade tensions between the US and China, along with easing fears about the Federal Reserve’s (Fed) independence, remain supportive of a positive tone around the equity markets. This is holding back traders from placing aggressive bullish bets around the JPY and acting as a tailwind for the USD/JPY pair. However, the fundamental backdrop and the divergent BoJ-Fed monetary policy expectations suggest that the path of least resistance for the lower-yielding JPY remains to the upside.

Japanese Yen bulls seem non-committed amid a positive risk tone

• US President Donald Trump said that the 145% tariffs on Chinese imports will eventually come down substantially. Meanwhile, US Treasury Secretary Scott Bessent denied a Wall Street Journal report that the White House is considering unilaterally slashing tariffs on Chinese imports.
• Bessent’s remarks suggested that the Trump administration could be waiting for China to make the first move, which cooled some optimism that the trade war between the world’s two largest economies would de-escalate soon. This, in turn, drives some safe-haven flows towards the Japanese Yen.
• Japan’s Finance Minister Katsunobu Kato told G7 countries on Thursday that US tariffs are highly disappointing and creating uncertainties in financial market. Meanwhile, Japan’s Economic Revitalization Minister Ryosei Akazawa will visit the US for tariff talks from April 30.
• Bank of Japan Governor Kazuo Ueda said last week that the central bank may need to take policy action if US tariffs hurt the Japanese economy. Moreover, reports suggested that the BoJ will cut its economic growth forecasts and warn of escalating risks from Trump’s sweeping trade tariff.
• Investors, however, seem convinced that the BoJ will continue raising interest rates in 2025 amid the broadening inflation in Japan, which has been running at or above the 2% target for around three years. This marks a big divergence in comparison to dovish Federal Reserve expectations.
• In fact, traders have been pricing in the possibility that the Fed will resume its rate-cutting cycle in June and lower borrowing costs at least three times by the end of this year. This fails to assist the US Dollar to capitalize on a two-day-old recovery, led by easing fears over the Fed’s independence.
• Trump slammed Ukraine’s President Volodymyr Zelensky for his comments that Ukraine wouldn’t recognize Russian control of Crimea. Trump added that a deal to end the war was very close, but that Zelensky’s refusal to accept US terms “will do nothing but prolong the conflict.”
• This keeps the geopolitical risk premium in play, which, along with the divergent BoJ-Fed policy expectations, should continue to benefit the lower-yielding JPY. Traders now look to the US economic docket – featuring Weekly Initial Jobless Claims, Durable Goods Orders, and Existing Home Sales data.

USD/JPY is likely to attract some dip-buyers ahead of the 142.00 mark

From a technical perspective, the overnight close above the 23.6% Fibonacci retracement level of the March-April downfall and the 143.00 mark was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on hourly charts have been gaining positive traction and support prospects for the emergence of dip-buyers near the 142.45-142.40 region. This should help limit the downside near the 142.00 round figure, below which spot prices could slide to mid-141.00s en route to the 141.10-141.00 region. The downward trajectory could extend further towards the 140.50 intermediate support and eventually expose the multi-month low – levels below the 140.00 psychological mark touched on Tuesday.

On the flip side, momentum back above the 143.00 mark might confront some hurdle near the 143.55 area or the overnight swing high. Some follow-through buying has the potential to lift the USD/JPY pair beyond the 144.00 round figure, towards the 144.35 confluence. The latter comprises 38.2% Fibo. level and the 200-period Simple Moving Average (SMA) on the 4-hour chart, which if cleared decisively should pave the way for some meaningful recovery in the near term.

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