The US administration is not going to withdraw tariffs, while the Bank of Japan stays focused on monetary policy normalization. These factors strengthen the downtrend in the USDJPY pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of Japan will keep rates unchanged at its April 30 – May 1 meeting.
- Washington and Tokyo did not discuss specific exchange rates.
- The strengthening of the yen is curbing inflation.
- Consider short trades on the USDJPY pair with targets at 130 and 125.
Fundamental Forecast for Yen for Six Months
Increased global risk appetite and the reluctance of US and Japanese finance ministers to discuss specific USDJPY levels have led to a pullback in the quotes. However, from a fundamental point of view, the situation remains unchanged. The US administration has no intention of abandoning tariffs, and the BoJ has no plans to normalize monetary policy. This indicates that the downtrend in the USDJPY pair remains in place.
Ahead of Scott Bessent’s meeting with Katsunobu Kato, there was widespread market speculation about a potential repeat of the 1985 Plaza Accord scenario. Rumors suggested that Washington might pressure Tokyo to further weaken the USDJPY pair, given Donald Trump’s previous accusations that Japan had artificially kept the yen low to boost its corporate competitiveness. However, both finance ministers later stated that no specific exchange rate targets had been discussed.
Tokyo Inflation
Source: Bloomberg.
A weaker yen may indeed support Japanese exports. However, a stronger yen helps contain inflation, which could be a positive factor for the Bank of Japan, especially as consumer prices in Tokyo surged to 3.4% in April.
The depreciation of the USDJPY has given the Bank of Japan extra time, allowing it to consider delaying an increase in the overnight rate. None of the 54 Bloomberg experts predict any changes at the Governing Council meeting on April 30 – May 1. Additionally, confidence in monetary policy tightening by September has dropped from 89% to 45%. The BoJ will likely make its next move in July or October.
Bank of Japan Overnight Rate Forecasts
Source: Bloomberg.
The five-day rally of the S&P 500 index and the stabilization of US Treasury bond yields exerted pressure on the yen. The Japanese yen and Swiss franc replaced the US dollar as the main safe-haven currency on Forex. Therefore, improved global risk appetite helped USDJPY bulls. However, the bullish momentum was short-lived.
Market participants are becoming increasingly convinced that the “Trump put” exists, similar to derivatives contracts that protect against declines. The US administration’s more conciliatory rhetoric has been bolstering the S&P 500. However, it remains highly doubtful that the US has truly abandoned its goals. The impact of tariffs is becoming evident and will certainly slow the global economy, driving investors toward safe-haven assets.
Trading Plan for USDJPY for Six Months
Now, it is clear why UBS has revised its 2025 forecast for the USDJPY pair from 140 to 130, and Deutsche Bank predicts a decline to 115 by the end of 2027. Given the persistent downtrend, consider selling the pair during pullbacks with the main targets at 130 and 125.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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