USD/JPY Forecast: Can Bulls Hold 144.20 as Trade Tensions and Fed Dovishness Collide?
During Thursday’s European session, USD/JPY extended its recovery, briefly approaching 145.22 before pulling back. The pair found support...
Quick overview
- USD/JPY briefly approached 145.22 before pulling back, supported by a renewed risk appetite from a U.S.-Vietnam trade agreement.
- Tensions between the U.S. and Japan are rising, with Trump threatening tariffs on Japanese goods amid stalled trade talks.
- The Bank of Japan remains hawkish while the Fed signals caution, leading to a weakening U.S. dollar as market expectations for rate cuts grow.
- Technical analysis shows USD/JPY testing critical support at 144.20, with potential for further gains or a shift towards downside targets.
During Thursday’s European session, USD/JPY extended its recovery, briefly approaching 145.22 before pulling back. The pair found support from renewed risk appetite, partly driven by a fresh trade agreement between the U.S. and Vietnam. That deal eased some global trade anxiety, cutting into demand for the safe-haven Japanese Yen.
At the same time, tensions between the U.S. and Japan are flaring. Former President Donald Trump renewed tariff threats, warning of duties as high as 35% on Japanese goods, citing Tokyo’s unwillingness to buy U.S. rice. These comments came as trade talks between the two nations stalled ahead of the July 9 deadline. While risk-on sentiment helped push USD/JPY higher, geopolitical stress and trade friction are beginning to cap gains.
BoJ Stays Hawkish While the Fed Signals Caution
On the monetary policy front, the Bank of Japan remains one of the few central banks still discussing tightening. Governor Kazuo Ueda recently reinforced that rates remain below neutral and may need to rise further, especially with inflation staying above the BoJ’s 2% target for over three years. These expectations continue to provide a floor for the Yen.
In contrast, the U.S. dollar is starting to lose ground as Fed expectations turn dovish.
After June’s ADP report showed a shocking drop of 33,000 private payrolls, all eyes turned to Friday’s Nonfarm Payrolls, which printed at 147,000—slightly above estimates but not strong enough to reverse softening sentiment. Unemployment ticked up to 4.1%, while wage growth slowed to 0.2%, indicating cooling inflation.
Market pricing now reflects about a 25% chance of a July rate cut, and expectations for two cuts before year-end are solidifying. Political pressure isn’t helping either, Trump’s public remarks about Powell’s leadership and potential resignation calls have stirred concerns about the Fed’s independence, which is additionally weakening the dollar’s appeal.
Technical Analysis: Momentum Fades at Channel Support
the USD/JPY pair is now trading near 144.35, pulling back from the 145.22 resistance. Price remains within a rising channel, but the pair is testing a critical zone where short-term sentiment could shift.
- The 50-period EMA at 144.21 aligns with the lower channel boundary, acting as dynamic support.
- The MACD histogram is fading, and signal lines are converging, hinting at declining momentum.
- The price structure still shows higher highs and higher lows, but a break below 144.20 could open the door to 143.36 and 142.78.
Trade Setup:
- Bias: Cautiously bullish above 144.20
- Buy Zone: Bullish reversal from 144.20–144.00
- Upside Targets: 145.22, 145.87, 146.60
- Bearish Breakdown: Close below 144.20 opens path to 143.36 and 142.78
- Watch For: EMA bounce, MACD crossover, or bullish candlestick confirmation.
From my experience, this is a textbook test of momentum versus structure. If bulls defend 144.20 with conviction, another push toward 145.87 is likely. But if that zone breaks, the focus shifts sharply toward downside targets. With conflicting macro themes in play, confirmation and risk management are more important than ever.
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