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The Japanese yen (JPY) showed strength during the Asian trading session on Thursday, reacting to the release of producer price index (PPI) data that exceeded market expectations. This macroeconomic signal reinforced speculation about possible further monetary policy tightening by the Bank of Japan (BoJ), keeping the probability of an interest rate hike in the future. Additional support for the yen was provided by positive expectations of a potential trade agreement between Japan and the United States.
Amid the weakening of the US dollar (USD), the USD/JPY pair showed a pullback and fell below the psychologically important level of 147.00, which was also supported by a limited correction of the US currency amid a general recovery in market confidence.
The divergence in monetary expectations between the Bank of Japan and the Federal Reserve remains significant. While Japan is increasingly likely to tighten monetary policy, markets in the US are pricing in a scenario of multiple cuts in the Fed’s key interest rate in 2025. This discrepancy has prevented the US dollar from maintaining momentum after an overnight recovery from a weekly low, prompting a reallocation of capital in favor of the more stable yen despite its status as a low-yielding currency.
Improved global risk sentiment, driven by US President Donald Trump’s announcement of a temporary suspension of retaliatory tariffs against key trading partners, may also help strengthen the yen as a safe haven asset, especially amid continued uncertainty in international markets.
Trade recommendation: SELL 146.80, SL 147.40, TP 145.40
Origin: FreshForex
