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14.05.2025 11:28 AM
USD/JPY. Analysis and Forecast

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At the moment, the Japanese yen is showing positive momentum against the U.S. dollar for the second consecutive day.The key factor supporting the Japanese currency has been hawkish comments from Bank of Japan Deputy Governor Shinichi Uchida, who left the door open for further monetary policy normalization through interest rate hikes. Uchida stated that if the economy and prices evolve as expected, the central bank would continue raising rates. He also added that Japan's economic growth is expected to slow to around its potential before gradually resuming moderate expansion as other global economies recover. This boosts expectations for increased appeal of the yen, contributing to its strengthening.

Currently, traders have revised their expectations of aggressive Fed easing, reducing the likelihood of sharp future rate cuts. Nonetheless, investors are still pricing in roughly 56 basis points of Fed rate cuts by the end of the year. These expectations have been reinforced by weak U.S. consumer inflation data released on Tuesday.

According to the U.S. Bureau of Labor Statistics (BLS), the annual headline Consumer Price Index (CPI) dropped to 2.3% in April from 2.4% in March. The core CPI, which excludes volatile food and energy components, matched analysts' forecasts. These figures are keeping the U.S. dollar below the recent peak seen on April 11 and are exerting some pressure on the USD/JPY pair.

Despite this, optimism surrounding the trade truce between the U.S. and China continues to support positive sentiment across broader markets. Reports that both countries agreed to pause the trade war for 90 days and reduce mutual tariffs—along with President Donald Trump's statement about good relations with China—are not creating the kind of fear that would trigger a flight to safe-haven assets like the yen. Still, diverging monetary policy expectations between the Bank of Japan and the Federal Reserve are creating conditions for further short-term yen strength.

Overall, the current environment suggests the potential for a decline in USD/JPY driven by soft inflation data and positive trade developments. However, uncertainty remains regarding the Fed's next moves and the geopolitical landscape. Therefore, it's wise to closely monitor speeches from influential FOMC members, which could sway the dollar and provide direction for the currency pair.

Technical Outlook

Positive oscillators on the daily chart favor the bulls. As such, a correction below the psychological 147.00 level could be viewed as a buying opportunity near the 146.60–146.50 zone. However, a decisive break below this range would likely trigger technical selling, dragging USD/JPY toward the next round number at 146.00 and potentially toward the 145.50 zone, just ahead of the key psychological level at 145.00. A breach of 145.00 would shift momentum in favor of the bears.

On the other hand, the 147.65 level serves as resistance ahead of the 148.00 round level. Surpassing this barrier would open the path to the monthly high near 148.65. Additional buying beyond that high could act as a fresh trigger for bulls.

Irina Yanina,
Analytical expert of InstaForex
© 2007-2025
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