Geopolitical headwinds and diverging trade priorities between Tokyo and Washington reignited market volatility, placing USD/JPY back in sharp focus just days after the BoJ cut its growth outlook and stood pat on rates.
On Monday, May 5, the focus returned to trade developments. Finance Minister Katsunobu Kato reportedly noted that Treasury holdings could feature in US-Japan negotiations. But he later downplayed the idea of selling Treasuries, signaling lingering uncertainty over a potential deal.
Stalled progress in trade talks may revive demand for safe-haven assets, including the Japanese Yen. Meanwhile, sentiment around US-China trade talks remains pivotal. The Kobeissi Letter cited President Trump on May 5 as saying he has no plans to speak with President Xi:
“President Trump says he has no plans to speak with China’s President Xi this week. Trump says China is ‘ripping us off’ and Chinese and US officials are talking about ‘different things’.”
In today’s US session, the ISM Services PMI will influence Fed rate cut bets. Economists forecast the ISM Services PMI to dip from 50.8 in March to 50.6 in April.
A drop below the 50-neutral level may revive US recession concerns, potentially sending USD/JPY toward the crucial 142 support level. A higher print could signal a resilient US economy and a less dovish Fed stance. Falling bets on Fed rate cuts may drive USD/JPY above the May 2 high of 145.923, eyeing the 50-day EMA.
