On Tuesday (April 1st), the USD/JPY pair hovered around the 150 mark during the Asian session, with some selling pressure emerging due to market uncertainty. Investors are mainly concerned about U.S. President Trump's upcoming tariff policy, particularly the imposition of a 25% tariff on imported cars, which could have profound effects on Japan's key industries and affect the yen's safe-haven attraction.
Despite an optimistic mood in Asian stock markets limiting inflows into safe-haven currencies like the yen, the dollar remains under pressure due to tariff concerns and expectations of Federal Reserve rate cuts, keeping USD/JPY around the psychological barrier of 150.00. Trump's tariff threats pose challenges to Japan's manufacturing outlook, as shown by the Bank of Japan's Tankan survey released on Tuesday, indicating a drop in large manufacturers' confidence index from 14.0 to 12.0 for the first quarter of 2025—meeting expectations but highlighting a more significant decline in manufacturing outlook index below market expectations, suggesting trade tensions are affecting Japan's export-driven economy.
Investors widely worry that the full implementation of the tariff policy could force the Bank of Japan to delay rate hikes, weakening the yen's support. Meanwhile, despite growing external pressure, Japanese corporate inflation expectations are rising. The Tankan survey indicates businesses expect consumer prices to rise by 2.5% over the next year, up from the previous 2.4%. This data, in line with strong consumer inflation figures in Tokyo, increases market anticipation for potential BOJ rate hikes in 2025.
Meanwhile, the Federal Reserve may start a cycle of rate cuts due to economic slowdown expectations triggered by trade tariffs, further narrowing the U.S.-Japan yield spread and increasing the appeal of the low-yield yen, limiting the USD/JPY's upside potential.
The U.S. Dollar Index fell slightly to 104.09 on Tuesday, mainly affected by trade worries and declining U.S. bond yields, with rising global risk-aversion further diminishing the dollar's attractiveness. This week, the U.S. will release a series of significant economic data, including Tuesday's JOLTS job openings and ISM Manufacturing PMI, Wednesday's ADP employment report, and Thursday and Friday's ISM Services PMI and Non-Farm Payrolls (NFP). These data will play a crucial role in determining the dollar's trajectory. If economic data disappoint, the dollar may face further pressure, subsequently boosting the yen.
Technically, the USD/JPY breached the lower edge of its multi-week rising trend channel on Monday, triggering a bearish signal. However, neutral oscillators on the daily chart and support from the 100-period SMA suggest limited downside for USD/JPY. Further declines could see support at 148.70, and breaching this level might reignite the downtrend from the past three months.
Conversely, if USD/JPY breaks above 150.25, it might challenge the 150.75 to 150.80 range and test the 151.00 level. Surpassing the 200-day SMA could reverse the current bearish trend, with targets potentially reaching the 152.00 or even 153.00 level of the 100-day SMA.
Overall, the yen's current movement wavers between Trump's tariff threats and Japan's inflation expectations. Trade uncertainty has undermined confidence in Japan's economy and the yen, but a narrowing U.S.-Japan rate spread and rising inflation expectations provide potential rebound momentum for the yen.
