The Japanese Yen (JPY) maintains a bullish tone in the first half of the European session on Friday amid strong Household Spending data from Japan. This data has increased speculation of interest rate hikes by the Bank of Japan, keeping the USD/JPY pair subdued below the mid-144.00s.

Concerns surround US trade policies, particularly tariffs, which might impact Japan’s monetary policy normalisation. Liquidity remains thin due to the US Independence Day holiday, adding to market hesitancy.

US Jobs and Economic Data

In the US, 147,000 new jobs were added in June, surpassing the expected 110,000, with the Unemployment Rate falling to 4.1%. Wage inflation dipped slightly to 3.7%, below projections, while concerns arise over the new tax-cut and spending bill potentially increasing the federal deficit.

The USD/JPY pair has seen interplay between technical levels, with resistance near the 145.25 supply zone and support around 144.20. A decisive move below support might shift focus back to bearish traders, while resistance might cap gains unless consistently broken.

Tariffs, used to favour local producers, can impact economic relationships. Donald Trump plans to use tariffs as an economic strategy, focusing on imports from Mexico, China, and Canada, which together accounted for 42% of US imports in 2024.

The Japanese Yen showed strength early in the European session on Friday, boosted by better-than-expected figures on household consumption. This points to a more robust domestic backdrop, one that adds weight to the growing view that Japan’s central bank may be inching towards another rate hike. As a result, the USD/JPY currency pair struggled to gain upward traction, remaining below the 144.50 area.

We saw this firming in the Yen as a direct response to consumer-led resilience within Japan. It’s the kind of data that potentially pushes policy forward, especially in the context of ultra-loose monetary settings being phased out. At the same time, market participation has been limited, partly down to the US Independence Day break, which trimmed the depth of liquidity and dampened sharp movements. With fewer participants, even ordinary releases have had outsized impact, though this is likely short-lived.

Trade Policies and Market Impact

Traders shouldn’t overlook what’s unfolding in the United States, where job creation outpaced forecasts. June brought 147,000 new positions – a clear beat against the 110,000 expected. On the surface, this suggests firmness in the labour market. However, the decline in wage inflation to 3.7%, falling short of estimates, undercuts the hawkish narrative. That small slip takes some pressure off the Federal Reserve, which has been treading carefully on rate direction.

Also playing into sentiment are fiscal developments, namely the potential hit to government coffers from new rounds of tax cuts and spending. The concern isn’t just ideological; it’s practical. A wider deficit could eventually shape how policymakers approach interest rates and long-term debt management. This fiscal backdrop is now part of the broader picture affecting dollar strength.

Over on our screens, technical conditions on the USD/JPY chart have firmed. Price action has respected a defined range: resistance around 145.25, support not far at 144.20. Trading within this corridor will likely keep range traders active. For more directional conviction, either a sustained move above resistance or a clean break below support would be necessary. The zone we’re watching isn’t arbitrary – it reflects recent secondary highs and reaction lows from prior sessions, where institutional orders are likely concentrated.

While the Japanese currency carries this upward tone, there’s another layer to consider – external trade policy coming out of Washington. Planned tariff measures, especially those directed at key trading partners like China, Mexico, and Canada, may trigger shifts across broader markets. In practice, tariffs function as levies designed to support domestic industries. But for market pricing, especially in cross-border pairings, they can inject volatility depending on how retaliatory responses unfold.

If these trade measures start affecting exchange flows, particularly in sectors tied to Japanese export volumes, then derivative pricing around USD/JPY could see more reactive positioning. We’ve seen how currency markets absorb this type of policy response from prior cycles. The expected continuation of protectionist economics stands to keep hedgers active, particularly on the longer end of the volatility curve.

For traders concentrating on directional plays or constructing volatility bets, this isn’t a moment to act on headlines alone. Liquidity conditions, economic releases, chart patterns, and geopolitical decisions are all active forces shaping pricing. There’s a time to lean into breakout systems, and a time to fade the noise – knowing which is which will separate constructive risk from speculation for its own sake.

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