How trade risks and BoJ shape USD/JPY analysis

The Japanese Yen lost some ground on Thursday, with USDJPY climbing over 100 pips from recent lows as risk sentiment improved across Asia. But while the move looks decisive on the surface, the bigger picture is far murkier. Between mounting trade tensions and a cautious Bank of Japan, the path ahead for USDJPY is anything but straightforward.

Japanese yen forecast: A risk-on rebound, but the Yen isn’t out

Asian equity markets bounced back, lifting spirits and nudging traders away from safe-haven plays like the Yen. The US Dollar, too, found support on the back of stronger retail sales, helping USDJPY catch a short-term bid.

Still, this isn’t a clean break higher. The Yen’s losses remain contained, with investors wary of pressing shorts in an environment riddled with geopolitical landmines, economic uncertainty, and central bank divergence.

Trade tensions: Tariffs complicate the outlook

Trade tensions are re-emerging as a major market driver. The US has tightened restrictions on AI chip exports to China, prompting Beijing to retaliate with a sharp hike in tariffs on US goods - some as high as 125%. While not directly aimed at Japan, the knock-on effects could ripple across Asia, adding pressure on regional trade flows and sentiment.

At the same time, US President Donald Trump is touting “big progress” in trade talks with Japan. Whether this signals a breakthrough or political posturing is unclear, but any signs of a deal could offer temporary relief for the Yen.

BoJ caution persists despite Bank of Japan rate hike talk

The Bank of Japan’s tone is noticeably cautious. Governor Kazuo Ueda has suggested the central bank could hold off on further rate hikes if trade-related headwinds intensify. With Japan’s recovery still fragile, the BoJ is clearly in no rush to tighten.

Adding to the dovish undertone, reports suggest the BoJ may lower its growth forecasts at the upcoming April 30 - May 1 policy meeting. But it’s not all retreat: BoJ board member Junko Nakagawa has signalled that rate hikes are still on the table if the economic outlook stabilizes. That’s a notable shift for a central bank long known for ultra-loose policy.

Meanwhile, in dollar land

The US Dollar is finding its feet again, thanks to some surprisingly strong retail sales data (+1.4% in March!) and a big reality check from Fed Chair Jerome Powell. His message? Don’t count on rate cuts just yet.

Inflation’s still sticky, and Powell isn’t keen on adding more fuel to the fire - especially with Trump’s tariffs muddying the waters. The market, however, is still betting on three cuts this year, arguing that trade tensions could choke off growth. That disconnect? It’s adding volatility to the USD/JPY equation.

USD/JPY technical outlook: Japanese yen forecast?

The Yen’s short-term dip may not tell the whole story. This currency pair could experience more turbulence due to trade war drama, BoJ uncertainty, and diverging Fed-BoJ paths.

The bottom line is that the 100+ pip bounce in USD/JPY might be more of a breather than a breakout. The next move will depend on who blinks first - the Fed, the BoJ, or the markets themselves.

The USD/JPY pair is seeing some downward pressure. Prices below the moving average indicate that the overall trend is still downward. The RSI holding flat at 30 indicates that the momentum to the downturn has slowed. The market is pausing near the bottom, indicating that it is waiting for a new catalyst. We could see a price uptick if prices inch down, touching the lower Bollinger band. If we see an uptick, prices could find a resistance wall at the $144.00 and $147.00 price levels. If we see a slide, prices could find a floor at the $142.00 price level.

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