The USD/JPY currency pair has been losing its traction and failed to stop its downward trend as it is currently trading above the 150 level. However, the reason for its downward trend can be attributed to multiple factors like the bearish US dollar and the hawkish stance by the BoJ Governor Kazuo Ueda, which boosted the JPY and contributed to the USD/JPY pair‘s losses.

Whereas, the US dollar’s decline has played a major role in undermining the USD/JPY pair. In contrast to this, the risk-on market sentiment could help the USD/JPY pair by undermining the safe-haven Japanese yen.

Current Economic Conditions and Factors Impacting JPY

It is worth noting that Japanese authorities and Bank of Japan Governor Kazuo Ueda have backed the Japanese Yen (JPY) verbally. This means that Japan’s Finance Minister Shunichi Suzuki restated on Thursday that the government is closely observing fluctuations in the foreign exchange market with great urgency, which helps to bolster the Japanese Yen.

However, concerns about Japan entering a recession have tempered hopes for a change in the Bank of Japan’s policy stance.

On the data front, a recent survey showed that Japan’s factories continued to decline for the ninth month in a row in February. This was mainly because new orders fell sharply. The au Jibun Bank flash Japan Manufacturing PMI dropped to 47.2 from 48.0, and the services sector gauge fell from 53.1 to 52.5.

The combined Composite PMI was 50.3, indicating that overall business activity was stagnant. This drop shows a decrease in optimism among companies, with the report mentioning the lowest level of confidence since January 2023. Meanwhile, the Japanese Cabinet Office also lowered its economic outlook in February, the first downgrade since November 2023.

Therefore, the Japanese Yen is strengthening against the US Dollar due to verbal support from authorities and economic concerns, with Japan’s factory activity declining for nine months.

USD Struggles Amid Fed Rate Cut Expectations

The US dollar is having trouble attracting buyers and remained under pressure despite hawkish stance by Fed. The minutes from the January FOMC meeting revealed that officials are cautious about cutting rates too soon.

They want to be sure that inflation is falling before considering rate cuts, suggesting the Federal Reserve will keep rates higher for longer. Traders expect rate cuts to possibly begin in June, leading to higher US Treasury bond yields.

This increase in the 10-year bond yield, the highest since November 30, boosts the US Dollar and offers more support to the currency pair.

USD/JPY Technical Outlook

In the current financial milieu, the USD/JPY pairing has showcased a steady stance, maintaining a position around the $150.42 mark. The currency pair, often seen as a barometer for broader market sentiment, has not strayed far from its pivot point, indicated by the green line at $150.42.

As of the latest technical outlook, immediate resistance levels are observed at $150.79, $151.00, and $151.35, suggesting a cautious approach by traders as they navigate these upper echelons.

Support levels, conversely, lie at $150.00 and further down at $149.50, serving as potential fallbacks should the pair retreat from its current level.

The Relative Strength Index (RSI) hovers at a neutral 52.84, indicating neither overbought nor oversold conditions. The Moving Average Convergence Divergence (MACD) shows a slight negative value at -0.00010 against a signal line at 0.00014, hinting at potential indecision in the market.

The convergence of the MACD lines suggests traders are watching closely for a definitive trend. Meanwhile, the 50-day Exponential Moving Average (EMA) at $150.42 aligns with the pivot point, reinforcing this level as a significant fulcrum for future price movement.