February 17, 2025 at 06:42AM
It might shape up to be a quieter start to the new week but USD/JPY is one to stand out early on as it slumps further since the end of last week. The prospect of reciprocal tariffs and a stronger US CPI report helped to bump up the pair alongside bond yields in the week before but it has all come tumbling down after.
Trump’s reciprocal tariffs saw a less fearful reception in broader markets while the initial reaction to the US CPI report was faded as well. On the latter, it was even more quickly in other dollar pairs than it was for USD/JPY. It took a while for USD/JPY to fall back, following the move in the bond market of course.
10-year Treasury yields touched a high of 4.66% after the US CPI report but have reversed lower to 4.48% at the end of Friday. That is taking USD/JPY down alongside it.
Treasuries are closed for trading today but evidently, there’s still some added weight to the declines. So, what’s next for USD/JPY?
The technical picture above shows sellers back in control. The break under the 100 (red line) and 200-day (blue line) moving averages keeps the downside momentum going and draws in a test of 151.00 again next.
On the week itself, the FOMC meeting minutes will be one to watch before US PMI data on Friday. In between, it’ll be the usual Trump shenanigans again. That settles the dollar side of the equation.
But as evident by the market mood since last week, we’re less fearful about Trump’s theatrics now that we have an idea of what playbook he wants to run on the tariffs front. Still, things can change so just be wary of potential headline bombs that can drop during the week.
As for the yen side of the equation, there are some things to be mindful of.
The first one will be the spring wage negotiations in March. As we move closer towards that, expect there to be more headlines focusing on wages such as this one here. That could ignite a further spark in the yen if the BOJ wants to move quicker in building on the stronger wage numbers.
The other thing to watch out for will be Japan’s fiscal year-end yen repatriation. It’s not one that will show up on the headlines but the flows are typically something that could have an influence on price action in the weeks ahead.
There are arguments out there from last year that it isn’t looking to be the case anymore. However, conventional wisdom dictates that not all Japanese firms can afford to skip on repatriating funds back to home. So, there’s that.
As things stand, with a weaker dollar and strong likelihood of more positive spring wage talks in Japan, the path of least resistance looks to be lower for USD/JPY. The only sticking point will be the state of play in the bond market. If yields are also going to stay heavy, it will make a test of the critical level of 150.00 much easier at least.
This article was written by Justin Low at www.forexlive.com.
