06/05/25

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The USD/JPY currency pair is experiencing downward pressure, having dropped to a multi-day low after a brief uptick. This decline is largely attributed to increasing trade uncertainties and geopolitical tensions, which have led to greater demand for the safe-haven Japanese Yen (JPY). Additionally, the differing expectations between the Bank of Japan (BoJ) and the Federal Reserve are contributing to this downward trend, especially as market participants await the outcome of the upcoming FOMC meeting.

On Tuesday, USD/JPY fell for the third consecutive day, retreating over 100 pips from its daily peak of around 144.25-144.30. This recent decline comes after a strong reaction to the BoJ’s dovish stance unveiled last week, where the central bank revised its growth and inflation outlooks downward. Consequently, this led to a reevaluation of anticipated rate hikes in the near future. While the BoJ remains committed to potential rate increases if economic conditions align with its projections, the ongoing safe-haven demand for the JPY and subdued interest in the US Dollar (USD) continue to exert pressure on the pair.

Global trade dynamics also appear to be weighing on investor sentiment. Recent hints from U.S. officials regarding potential trade agreements have created a flicker of optimism, yet concerns linger about fluctuating trade policies that could impact global economic health. Geopolitical risks, particularly surrounding the ongoing conflicts in Russia and Ukraine, further contributed to market unease, reflected in the diminishing performance of equity markets, which tend to bolster interest in safe-haven currencies like the JPY.

Amid this backdrop, the USD is struggling to gain traction. Relatively improving U.S. economic indicators, including employment data and recent service sector growth, had initially eased recession fears. However, traders remain cautious, seeking clarity from the Federal Reserve regarding future rate adjustments. With the Fed’s meeting scheduled soon, attention will be focused on its interest rate decision, which is expected to maintain the current rate but could yield crucial insights into future monetary policy shifts.

In terms of technical analysis, the recent failure to maintain positions above key Fibonacci retracement levels and resistance marks suggests a bearish outlook may persist. A decline below the 143.00 threshold has reinforced this sentiment, with some analysts anticipating a move towards essential support levels around 142.65 and potentially down to 141.00. Conversely, any recovery above 143.00 may face significant resistance, indicating that the current path for the USD/JPY may largely favor downward movements in the near term.