Insights 
VT 
The Japanese Yen (JPY) continues to decline during the early European session on Monday, influenced by predictions of the Bank of Japan (BoJ) postponing a rate hike to Q1 2026. Additional concerns include the potential economic impact from 25% US tariffs on Japanese vehicles and 24% on other imports, along with a modest strengthening of the US Dollar (USD).
Despite Japan’s National Consumer Price Index (CPI) remaining above the BoJ’s 2% target in May and better-than-expected PMI figures, this has not provided a reversal for the JPY. Rising geopolitical tensions in the Middle East have also failed to enhance the JPY’s appeal as a safe haven, with the USD/JPY pair likely to continue its upward trend.
BoJ Adjusts Economic Outlook
The BoJ has adjusted its bond purchase reduction plan from fiscal 2026, amidst an uncertain economic outlook and potential ramifications from US trade tariffs. Japan’s core inflation data for May remain above the 2% target, opening possibilities for future rate hikes. However, Japanese Yen faces weak support despite PMI data showing renewed growth in manufacturing and services.
The Federal Reserve forecasts two rate cuts for this year, with one 25 basis point cut anticipated annually in 2026 and 2027, supporting the US Dollar. Geopolitical developments include US military action in Iran targeting nuclear sites, with officials emphasising opposition to Iran’s nuclear programme rather than engaging in war.
The USD/JPY pair may gain and surpass the 100-day Simple Moving Average at 146.80, potentially reaching the 148.00 mark. Conversely, a drop below the 146.00 mark could attract buyers and offer support around 145.30-145.25. Breaking the 145.00 mark may lead to technical selling and a bearish outlook.
A currency table today shows the Japanese Yen’s performance against major currencies, with the Yen strongest against the New Zealand Dollar.
With the Japanese Yen facing downward pressure at the start of the week, much of the attention has shifted to the Bank of Japan’s latest policy signals. The belief that rate hikes could be held off until the first quarter of 2026 has led to a weakening bias for the Yen. Lags in monetary tightening—particularly when inflation data suggest it might already be warranted—create an environment where a carry trade becomes more attractive, especially when paired with currencies underpinned by firmer interest rate outlooks. The pressure on the JPY reflects this directly.
Kuroda’s successor appears to be prioritising bond market stability over immediate inflation targeting. Even though the consumer price index continues to hover above the central bank’s long-standing 2% threshold, officials have clearly signalled caution. That decision—whether prudent or not—diminishes the attractiveness of the Yen in highly leveraged positioning over the short term. We’ve seen the PMI figures surprise to the upside, yet that hasn’t translated to broader confidence in Japan’s growth momentum within currency markets.
The new US tariffs are also not helping. The decision to target Japanese vehicles with 25% levies and apply 24% to other imported goods has raised concerns around Japan’s export sector, historically one of its strongest economic pillars. These tariffs don’t just dent revenue projections; they could also test Japan’s current account surplus over time, which traditionally supports the Yen.
Geopolitical Dynamics and Market Movements
Dollar strength, meanwhile, remains intact with Powell’s team sticking to its script. Two rate cuts are projected this year, although the US central bank continues to forecast modest reductions in 2026 and 2027, suggesting the hiking cycle was mostly complete but still leaving room to keep real yields in positive territory. That anchors the dollar well against the Yen and adds to upward trajectories in USD/JPY.
Increased geopolitical risk generally supports haven currencies, but that dynamic seems to have shifted. US military activity in Iran—aimed at nuclear facilities—hasn’t pushed investors into the Yen as might have been expected. Instead, the Dollar remains the preferred avenue for safety-related flows, perhaps due to higher short-term yields. That change in response pattern matters. It weakens the assumption that JPY is a catch-all safe asset and offers less defensive value when instability arises globally.
From a price action perspective, we’re at a delicate technical point. The USD/JPY has breached its 100-day moving average and is on a path toward the 148.00 level. Resistance could build there, particularly if US data underperform in upcoming sessions. A retracement below 146.00 won’t necessarily prompt reversal behaviour, but we’d expect dip-buying interest to emerge between 145.30 and 145.25. Should we see a push through 145.00, it may shake loose algorithmic selling setups, leading to thinner liquidity zones and stronger downward pressure.
Today’s currency performance reading tells us the Yen is showing relative firmness against the New Zealand Dollar, but that may be little comfort given softness against most of the G10 basket. This sort of rotation—where some pairs are resisting the broader move—doesn’t suggest a shift in fundamental support, but rather a reflection of localised sentiment or external weakness elsewhere.
Near-term tactics need to be rooted in the expectation of modest volatility spikes—particularly around US data prints and meetings of major central banks. We’ve seen too many false starts on BoJ recalibration to react prematurely. Until bond purchase tapering turns into an actual rate hike path or the USD ceases to get support from high real yields and geopolitical hedging flows, bias remains directed away from JPY. Watch the levels, but more importantly, stay mindful of narrative shifts—both between and during central bank communications.
