Japanese Yen remains on the back foot against USD amid receding safe-haven demand

• The Japanese Yen attracted some intraday sellers amid receding safe-haven demand.
• A modest USD uptick also contributes to the USD/JPY pair’s recovery of over 100 pips.
• Trade-war woes and divergent BoJ-Fed policy expectations should limit JPY losses.

The Japanese Yen (JPY) retains its negative bias heading into the European session on Thursday, which, along with a modest US Dollar (USD) strength, assists the USD/JPY pair to hold steady above mid-142.00s. The global risk sentiment improves slightly amid hopes of US tariff negotiations and turns out to be a key factor undermining traditional safe-haven assets, including the JPY. However, the uncertainty surrounding US President Donald Trump's tariff announcement, the rapidly escalating US-China trade war, and global recession fears might keep a lid on any optimism in the markets.

Apart from this, expectations that Japan will strike a trade deal with the US and bets that the Bank of Japan (BoJ) will hike interest rates act as a tailwind for the JPY. In contrast, the USD bulls seem reluctant to place aggressive bets amid the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle soon and lower borrowing costs at least three times this year. This might further contribute to capping any meaningful recovery for the USD/JPY pair. Traders now look to the US macro data and the Fed speak for short-term impetus later during the North American session.

Japanese Yen seems poised to appreciate further amid trade-related uncertainties, BoJ rate hike bets

• Asian equity markets and US stock index futures edge higher on Thursday following the overnight tech-led slump on Wall Street, undermining traditional safe-haven assets, including the Japanese Yen.
• A former Bank of Japan executive director Kenzo Yamamoto said that the central bank will likely delay raising rates and wants to see how US-Japan trade talks proceed before making any move.
• On Wednesday, BoJ Governor Kazuo Ueda signaled the potential to pause the rate-hiking cycle and said that the central bank may need to take policy action if US tariffs hurt the Japanese economy.
• Moreover, Reuters – citing three sources – reported that the BoJ is set to cut its economic growth forecasts at the April 30-May 1 meeting as US tariffs heighten risks to the fragile economic recovery.
• The US Dollar attracts some buyers and reverses a part of the previous day's slide back closer to a multi-year trough in the wake of Federal Reserve Chair Jerome Powell's hawkish comments.
• Powell said the US central bank was not inclined to cut interest rates in the near future amid still sticky inflation and economic uncertainties introduced by US President Donald Trump's tariffs.
• This came on top of the upbeat US Retail Sales, which rose sharply by 1.4% in March, following a revised 0.2% increase in the previous month, which offers additional support to the Greenback.
• The markets, however, are still pricing in the possibility that the Fed will lower borrowing costs at least three times this year amid growing concerns about a tariffs-driven US economic slowdown.
• In the latest development surrounding the US-China trade fight, the US government imposed new licensing requirements and limited exports of H20 artificial intelligence chips to China.
• This comes after China raised its tariffs on imports of US goods to 125% last Friday in a retaliatory move to Trump's decision to effectively raise US tariffs on Chinese goods to 145%.
• In contrast, Trump said negotiators had made “big progress” in trade talks with a Japanese delegation in Washington about the barrage of tariffs he has imposed on global imports.
• Adding to this, Japan’s Prime Minister Shigeru Ishiba said that talks with the US were constructive and that the government will continue to consider trade negotiations a top priority.
• Furthermore, Japan's Economy Minister Ryosei Akazawa said that the officials agreed to hold a second meeting this month and believed that the US wants a deal within the 90-day window.
• This, in turn, fuels optimism that Japan might strike a trade deal with the US, which, along with expectations that the BoJ will hike interest rates in 2025, should limit deeper JPY losses.
• BoJ board member Junko Nagakawa said that if the outlook for economic activity and prices is realized, the central bank will continue to raise rates and adjust the degree of monetary accommodation.
• Traders now look to the US economic docket – featuring the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and housing market data – for a fresh impetus.

USD/JPY struggles to capitalize on intraday recovery from multi-month low; not out of the woods yet

From a technical perspective, the overnight breakdown and close below the 142.00 mark was seen as a fresh trigger for bearish traders. Moreover, negative oscillators on the daily chart suggest that the path of least resistance for the USD/JPY pair remains to the downside. Hence, any subsequent move up beyond the 143.00 round figure could be seen as a selling opportunity near the 143.55-143.60 region and remain capped near the 144.00 round figure. A sustained strength beyond the latter, however, might trigger a short-covering rally to the 144.45-144.50 horizontal barrier en route to the 145.00 psychological mark.

On the flip side, the 142.00 round figure now seems to protect the immediate downside ahead of the 141.60 area, or a multi-month low touched during the Asian session. Some follow-through selling will reaffirm the negative bias and pave the way for an extension of the USD/JPY pair's recent well-established downtrend witnessed over the past three months or so.