The Japanese Yen (JPY) continued its strong performance on Thursday, maintaining intraday gains near a two-week high against the US Dollar (USD). 

The USD/JPY currency pair hovered around the 146.00 level, a key psychological mark that coincides with technical support, reflecting broad-based USD weakness and renewed optimism over a recently announced Japan-US trade deal. Arbitics’ team presents a structured and insightful breakdown of this complex topic.

Trade Deal Spurs Optimism and BoJ Tightening Bets

The recent trade agreement between Japan and the US has alleviated significant economic uncertainty, particularly regarding bilateral trade tensions that had previously weighed on Japan’s export-driven economy. This development has increased expectations that the Bank of Japan (BoJ) will resume its monetary tightening cycle later this year, a fundamental driver supporting the JPY bulls.

BoJ Deputy Governor Shinichi Uchida reinforced this stance by reiterating that the central bank remains on track to raise interest rates if economic data and inflation trends continue to align with their forecasts. Supporting this view, a Reuters poll found that most economists expect the BoJ to deliver another rate hike by year-end, even though some anticipate a pause at the upcoming BoJ meeting.

The prospect of a tighter BoJ policy contrasts with the Federal Reserve’s ambiguous stance on future rate moves, thus providing the Japanese Yen a critical edge against the USD. This renewed BoJ tightening optimism has been pivotal in pushing the USD/JPY pair below the crucial 146.00 support, marking an important technical milestone.

US Dollar Under Pressure from Fed Uncertainty

The USD remains under pressure, hovering near a multi-week low against major currencies, including the JPY. This is largely due to rising uncertainty over the Federal Reserve’s rate-cut path and political interference risks. The US President has publicly criticized Fed Chair Jerome Powell for not lowering interest rates, adding to market concerns about the Fed’s independence.

Further complicating the outlook, US Treasury Secretary Scott Bessent indicated that a new Fed Chair nominee could be announced as early as December or January, which adds to the market’s unease regarding potential policy shifts. These factors contribute to a lack of USD demand, amplifying pressure on USD/JPY.

Thursday’s US economic calendar, featuring Weekly Initial Jobless Claims, flash PMIs, and New Home Sales, could trigger additional volatility later in the North American session. The European Central Bank (ECB) policy decision also looms, with its outcome potentially affecting risk sentiment and safe-haven flows that influence USD/JPY dynamics.

Technical Outlook: USD/JPY Vulnerable to Further Downside

From a technical analysis perspective, USD/JPY remains vulnerable. The pair is currently testing the 100-period Simple Moving Average (SMA) on the four-hour (H4) chart near the 146.00 level, a key technical support zone. A decisive breakdown below this SMA and the 146.00 mark could catalyze further selling pressure.

Additional confirmation of bearish momentum comes from technical oscillators on the daily chart, which have started to show negative divergence, indicating increasing downside potential. 

Should the pair slip below the 145.75 support, the July 10 low, the next target lies between 145.20 and 145.15, coinciding with the 61.8% Fibonacci retracement level of July’s upward move. Breaching this level could open the door to a deeper pullback toward the 145.00 psychological barrier.

On the upside, immediate resistance is expected near the 100-period SMA breakpoint at approximately 146.60, aligning with the 38.2% Fibonacci retracement level. A sustained move above this hurdle could trigger a short-term recovery, lifting USD/JPY toward the 147.00 round figure.

Further gains might then challenge the overnight swing high near 147.20, and if cleared, could accelerate momentum toward the 147.60-147.65 intermediate resistance zone, en route to testing the 148.00 psychological level.

Summary

• The Japanese Yen is holding firm near a two-week peak against a broadly weaker US Dollar.
• The Japan-US trade deal has bolstered BoJ tightening expectations, supporting the JPY.
• Despite domestic political uncertainty and a disappointing manufacturing PMI, the Yen maintains its safe-haven status.
• The USD struggles amid Fed rate path uncertainty and political interference fears.
• Technical analysis suggests USD/JPY may break below the 100-SMA and key support at 146.00, paving the way for further downside.
• On the flip side, resistance at 146.60 and 147.20 levels could cap any immediate upside.

The current setup indicates that market participants remain cautious about the USD, while the JPY benefits from trade optimism and central bank tightening bets, underpinning the currency’s resilience in the near term. Traders should closely monitor economic data releases and central bank communications for clues on the evolving USD/JPY trajectory.