USD/JPY Under Pressure as BOJ Rate Hike Expectations and Falling U.S. Yields Boost Yen
USD/JPY extended its decline on Wednesday, dropping below key moving averages as expectations for a Bank of Japan rate hike intensified and soft U.S. ISM services data fueled Fed rate cut speculation. Strong Japanese wage data, corporate earnings, and PMIs pushed the 2-year JGB yield to its highest level since 2008, flattening the yield curve and reinforcing the BOJ’s case for policy normalization. Additionally, Governor Ueda’s emphasis on achieving sustainable 2% inflation suggests that the BOJ may soon act, with options markets increasingly pricing in a potential hike before July. Meanwhile, yen demand surged as a haven amid ongoing tariff uncertainty, pushing USD/JPY out of its prior 154-158 trading range.
Technically, USD/JPY has entered a bearish phase, having broken below its 200-day and 100-day moving averages at 152.73-152.80. The next key support levels lie at the 152 pivot from November 2023, followed by 151.92-151.94, a double-top from October 2022 and November 2023. A break below this zone would bring 151.50 into focus, which represents the 38.2% Fibonacci retracement of the September-to-January rally. Resistance stands at 153.37, the cloud bottom, which must be cleared for bulls to regain control. The downtrend remains intact as long as USD/JPY stays below the 200-DMA.
Looking ahead, traders will watch BOJ board member Tamura Naoki’s speech, Tokyo’s current account data, and weekly MOF flows for further clues on yen direction. Any additional hawkish BOJ signals could accelerate USD/JPY’s downside momentum, particularly if Treasury yields remain weak. Meanwhile, expectations for a dovish Fed and potential rate cuts could further weigh on the dollar. The upcoming meeting between Trump and Ishiba, intended to reinforce U.S.-Japan relations, could also influence sentiment. With bearish technicals and fundamental headwinds, USD/JPY may continue to face downward pressure in the near term.