- The USD/JPY falls below 144.00 while the divergence of policies and tax concerns weigh on the dollar.
- The president of the USA, Donald Trump, hopes that the House of Representatives approve his “great beautiful bill.”
- Japan’s restrictive turn and possible rates increases raise demand for Yen as a safe refuge.
The US dollar (USD) continues to weaken in front of the Japanese Yen (JPY), since the changing economic conditions and the perspectives of the central banks remodel the expectations for both currencies.
At the time of writing, the USD/JPY torque has fallen below the key psychological level of 144.00, an old support level that now acts as a resistance, highlighting the strengthening of the bearish feeling around the dollar.
One of the main catalysts behind the recent weakness of the USD is the reduction of the credit rating issued by Moody’s on Friday, which followed similar S&P and Fitch actions. AA1’s reduction reflects the growing concerns about the long -term fiscal trajectory of the US, particularly in the light of the proposal of law “One Big Beautiful Bill Act” by President Donald Trump.
The bill, which seeks to extend and expand tax cuts from the Trump era, could increase the US deficit by up to 3.8 billion dollars in the next decade, according to the Congress Budget Office (CBO). As investors digest the implications of this legislation, the feeling towards the US dollar has become cautious, especially given its potential to interrupt debt markets and force a reevaluation of the US credit solvency.
Meanwhile, in Japan, Yen benefits from both its traditional attraction and safe refuge and a changing internal political landscape. The Bank of Japan (BOJ), which has long maintained an ultra flexible monetary policy, has recently shown a greater disposition to normalize rates in response to persistent inflation and increased wages. The comments of the BOJ officials have suggested that the Central Bank is preparing for a possible increase in rates later this year, marking a significant change of its historically moderate position.
Adding to this impulse, Japanese Prime Minister Kazuo Ueda has reiterated the importance of addressing the wide differential of interest rates between Japan and the United States, which have historically weighed over the Yen. By reducing these differentials, Japan could help support their currency and reduce imported inflation, which remains a concern despite the improvement in domestic demand.
With these developments at stake, the USD/JPY pair is likely to remain volatile. The operators will continue to monitor the next economic data of the US, the comments of the FED and any advance in the vote of the Chamber on the Trump fiscal bill. At the same time, market attention will be fixed on the Boj’s policy signals and the fiscal comments of Japanese officials. In the short term, the bearish pressure on the USD/JPY seems intact, particularly if the feeling of risk favors safer assets such as YEN.
And in Japanese faqs
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
