The Japanese Yen (JPY) is experiencing a slight recovery, attracting safe-haven flows as risk sentiment slightly deteriorates. As the market anticipates the U.S. Personal Consumption Expenditure (PCE) data, the U.S. Dollar (USD) has paused its recent upward momentum, which is applying some downward pressure on the USD/JPY exchange rate.
During the Asian trading session on Friday, the JPY rebounded from a three-week low against the USD. This uptick comes in the wake of U.S. President Donald Trump announcing new tariffs on a wide array of imported goods, which has tempered investors’ risk appetite and directed some capital into JPY, traditionally viewed as a safe haven amid geopolitical uncertainties.
The USD, meanwhile, has paused near a three-week high as traders position themselves cautiously, awaiting critical inflation data, contributing to a modest pullback in the USD/JPY pair. Recent data from Tokyo indicated a lower-than-expected increase in consumer prices, with the Tokyo Consumer Price Index (CPI) rising 2.5% in September from a year earlier, falling short of forecasts and down from 2.6% in August. The ongoing concerns about political instability in Japan and the negative economic impact of the new U.S. tariffs can create a scenario where the Bank of Japan (BoJ) may delay its planned interest rate hikes, which could further complicate the outlook for JPY bulls.
In light of these developments, analysts suggest that cautious sentiment should prevail until there is clear evidence of follow-through buying in the JPY. Some market participants might hold off on their decisions until the release of the U.S. PCE Price Index, which significantly influences the USD and its pairing with the JPY.
The Leadership Election for Japan’s ruling Liberal Democratic Party (LDP) on October 4 is set to influence monetary policy in the country. Should a dovish candidate emerge victorious, this may postpone the anticipated interest rate hike by the BoJ, further adding to market uncertainty amid the backdrop of U.S. tariffs, which could weigh on the Japanese economy.
Trump’s recently announced tariffs—including a 100% levy on branded pharmaceutical products, 25% on heavy-duty trucks, and 50% on kitchen cabinets—are expected to further impact Japanese exports, consequently providing a boost to the JPY’s safe-haven status even as it faces headwinds.
On the U.S. side, the Dollar had been benefitting from recent stronger-than-expected economic indicators. The revised GDP figures revealed a 3.8% annualized growth rate for the second quarter, up from prior estimates, while initial jobless claims dropped significantly, alleviating concerns regarding the labor market’s performance. Though forward-looking indications suggest that traders still anticipate interest rate cuts from the Federal Reserve in the coming months, these expectations have somewhat restrained the USD’s ascent.
The USD/JPY exchange rate’s robust rise earlier in the week reaffirmed the breakout above the key 200-day Simple Moving Average (SMA). Daily oscillators remain in positive territory, suggesting potential for further bullish developments as traders eye the 150.00 psychological threshold, with possible gains leading towards the monthly swing high of around 151.00. However, support levels are crucial; should USD/JPY see a significant pullback, notable support is likely near 149.15, with further defenses at the 149.00 mark and mid-148.00s, marking the 200-day SMA.
As market participants assess these dynamics, the JPY has shown strength against major currencies, indicating a shift in investor sentiment towards safer assets amidst increasing uncertainty in global trade and economic conditions.
