However, the USD/JPY pair’s rebound can also be attributed to last week’s US Supreme Court ruling. The US Supreme Court ruled that President Trump’s rollout of tariffs under the International Emergency Economic Powers Act (IEEPA) was illegal. President Trump immediately announced a sweeping 10% tariff under a different Presidential authority and then increased it to 15%. The latest tariff developments have created uncertainty that may influence the BoJ’s monetary policy stance.
For context, the BoJ stated that US tariff risk had abated, supporting tighter monetary policy. Previously, policymakers had called for patience to assess any impact of US tariffs on Japan’s economy.
Tariff risks and Prime Minister Takaichi’s stance on monetary policy suggest the BoJ will remain in a policy holding pattern until the summer.
According to the latest Reuters poll, 43 of 74 economists expect the BoJ to raise interest rates to 1% by the end of June. Notably, only 20% of economists predicted an April hike, 36% a June hike, and 34% tighter monetary policy in July.
Given tariff uncertainty and Prime Minister Takaichi’s monetary policy stance, the outlook for USD/JPY is cautiously bullish. However, intervention warnings are likely to cap the pair’s upside near 160.
Nevertheless, the medium-term outlook remains bearish, with expectations of a summer BoJ rate hike and Fed rate cut supporting a USD/JPY downtrend.
While market bets on a BoJ rate hike fade, President Trump’s State of the Union Speech will draw market attention. Trump’s references to tariff policies would likely influence US dollar demand and USD/JPY trends, given the Supreme Court ruling.
Threats of more aggressive tariff policies would likely send USD/JPY higher, given the BoJ’s concerns about the effect of US tariffs on the Japanese economy.
Later on Wednesday, traders should also monitor FOMC members’ speeches. Their views on inflation, the labor market, and the timing of rate cuts are likely to move the dial.
Recent US economic data, including labor market and consumer confidence figures, have cooled bets on a June Fed rate cut, strengthening the greenback.
According to the CME FedWatch Tool, the probability of a June cut fell from 63.4% on February 17 to 49.6% on February 24. Softer expectations of a June cut support the cautiously bullish outlook for USD/JPY.
For USD/JPY price trends, traders should closely monitor technical indicators, key economic data, government policies, and central bank chatter.
On the daily chart, USD/JPY trades above its 50-day and 200-day Exponential Moving Averages (EMAs). The EMA positions indicate a bullish bias. However, more favorable yen fundamentals offset the bullish technical outlook, supporting a bearish medium-term outlook.
A break below the 50-day EMA would bring 153 into play. If breached, the 200-day EMA would be the next key technical support level. A sustained fall through the 200-day EMA would pave the way toward the 150 support level.
Furthermore, a sustained drop below the EMAs would signal a bearish trend reversal. Significantly, a bearish trend reversal would affirm the negative medium- to longer-term price outlook.
