- Uncertainties over global growth due to US trade tariffs have triggered the recent rebound seen in the USD/JPY ahead of BoJ & FOMC monetary policy meetings.
- The 2.2% bounce of the USD/JPY from its 11 March low is now fast approaching a key medium-term resistance zone of 150.70/151.50.
- The downward trajectory of the 10-year & 2-year yield spreads of US Treasuries/JGBs is likely to support a medium-term downtrend phase of the USD/JPY.
This is a follow-up analysis of our prior report, “USD/JPY: Yen strength elements emerged ahead of BoJ meeting next week” dated 16 January 2025.
Since our last publication, the price actions of the USD/JPY have transformed into a three-month medium-term downtrend where it tumbled by around 8% from its 10 January 2025 high of 158.88 to its recent 11 March low of 146.54.
The recent three-month Japanese yen strength against the US dollar has been supported by hawkish remarks from key Bank of Japan (BoJ) officials including Governor Ueda that guided BoJ’s third rate hike on 24 January to increase its key policy interest rate to 0.5%.
Also, economic data in the past two months have supported BoJ’s current monetary policy stance of “gradual increases in interest rates” as Japan’s core-core inflation rate (excluding food and energy) accelerated to 2.5% y/y in January, its highest rise since March 2024, above BoJ’s price target of 2%.
Secondly, wage growth for Japanese employees has moved in line with BoJ's outlook as well. Last Friday, Rengo, the largest Japanese Trade Union Confederation announced in its preliminary report that its members have secured pledges from companies of an average 5.46% rise in wages for the 2025 fiscal year starting from April, the biggest wage rise in 34 years, and above last year's increase of 5.28%.
Aggressive US Trade Tariffs Policy Created Uncertainty in Japan’s Growth Prospects
The recent outlook on Japan’s inflation and wage growth trend has triggered a swift rally in longer-term sovereign bond yields in Japan. The 10-year Japanese Government Bond (JGB) yield has risen to 1.50%, its highest level since 2008.
Given the rapid rise in the 10-year JGB yield that is likely to increase funding costs in Japan coupled with the rising risk of slower economic growth globally due to the US White House’s aggressive trade tariffs policy, market participants expect BoJ to stand pat on Wednesday, 19 March monetary policy decision and await for BoJ Governor Ueda’s latest guidance with the likelihood of another rate hike to be enacted in June or July according to consensus at this time of the writing.
Narrowing US Treasuries-JGBs Yield Spreads Support Further JPY Strength
Fig 1: 10-YR & 2-YR yield spreads of US Treasuries/JGBs medium-term trends as of 18 Mar 2025 (Source: TradingView)
The 10-year and 2-year yield spreads of the US Treasury notes over JGBs have continued to narrow (trended downwards) after they hit key pivotal resistances of 3.60% and 3.84% respectively in early January.
If their downward trajectory remains intact where the 10-year and 2-yield spreads of the US Treasury notes over JGBs may see further downside towards 2.40% and 2.90% respectively, which in turn may trigger further downside pressure on the USD/JPY (see Fig 1).
Watch the Key Resistance of 150.70/151.50 on USD/JPY
Fig 2: USD/JPY medium-term trend as of 18 Mar 2025 (Source: TradingView)
The recent rebound of 2.2% in the past five sessions seen in the USD/JPY from its intraday low of 146.54 on 11 March to its current level of 149.80 at this time of the writing is likely to be a minor corrective rebound sequence within a medium-term downtrend phase.
Watch the 150.70/151.50 key medium-term pivotal resistance and a break below 148.25 intermediate support may trigger another impulsive down move sequence to retest 146.90 before the next medium-term support comes in at 144.80 (see Fig 2).
On the other hand, a clearance above 151.50 invalidates the bearish scenario for a squeeze up toward the next medium-term resistance at 154.15.