The US dollar (USD) is likely to trade in the range of 142.30/144.30 against the Japanese yen (JPY). In the longer term, the US dollar may continue to fall, but given oversold conditions, it remains to be seen whether reaching the 139.55 level is within reach, according to UOB Group forex analysts, Quick Sir Liang and Peter Shea.
USD may continue to fall
24-hour look: “The US dollar fell last Thursday. On Friday, we noted that “further weakness in the US dollar is not ruled out.” We also noted that “support levels are at 143.05 and 142.50.” The expected decline exceeded our expectations, with the US dollar falling to 142.05 before rebounding strongly to close at 143.51 (-0.65%). This rebound under a state of oversold suggests that the dollar is unlikely to fall further. Today, the US dollar is likely to trade within the range of 142.30/144.30.
Forecast for the next three weeks: “After maintaining a negative outlook for the US dollar since the beginning of this month, last Friday (April 11, the spot rate at 143.80) indicated that “renewed momentum points to the possibility of a continued decline in the US dollar The US dollar then fell past 142.50 (low of 142.05). There is no change in our opinion, but given the oversold conditions. It remains to be seen whether the level of 139.55 is within reach this time around.
Regarding Japan’s inflation report, with market expectations of a rate hike from the Bank of Japan this year waning, any weak outcome could trigger a strong reaction. Increasing the risk that the bank will be forced to ease monetary policy amid the volatility of the international trade environment. Any positive reading can easily be considered old news, likely limiting its ability to boost the yen’s strength.
Trade war reflects dollar-yen relationship
Donald Trump’s trade war has turned the long-standing relationship between interest rate differentials and USD/JPY moves upside down, with rising US Treasury yields now seen as evidence of capital flight rather than as a reason to invest capital in US dollar assets.
With the US dollar’s safe-haven status temporarily invalidated due to growing uncertainty caused by Trump’s volatile tariff policy. The USD/JPY pair has effectively become an indicator of investor sentiment. With more emphasis on political headlines and the performance of riskier asset classes rather than economic data and central bank rhetoric to determine direction.
While the revelation of Trump’s exclusion of some electronic components from tariffs, announced late Friday, is likely to see a rally in the USD/JPY pair when trading resumes on Monday. The continuation of the move likely depends on the possibility of resolving trade tensions with key partners permanently. That seems unlikely in the near term.
The US dollar is seen as a risky asset
The strong correlation between interest rate differentials and USD/JPY trend has disappeared over the past month, with the correlation coefficient between US 10-year yields and benchmark Japanese 10-year bonds shifting from around 1 to -0.65 during that period. You can see the breakup of this correlation clearly in the left part of the chart below. As the USD/JPY pair fell even as the spread in favor of the US rose.
What is driving the movements of the USD/JPY pair now is evident in its relationship with other assets during the same period. For the Swiss franc, the correlation coefficient was almost perfect at 0.95. Inverse correlations were also strong with implied volatility measures in the US bond and equity markets, reaching -0.77 and -0.75 respectively.
Japanese Yen Tries to Stabilize Amid Fears of Trump’s Trade Policies
In the week ending April 8, leveraged funds have been the most optimistic about the yen since January 2021. While asset managers increased their long positions to an all-time high. According to Commodity Futures Trading Commission (CFTC) data dating back to 2006. The yen rose 2.3% against the U.S. dollar last week, hitting its highest level since September.
The rebound in yen demand comes amid mounting concerns that Trump’s trade policies — including increased tariffs on major economies such as China — could hamper global growth. Prompting a broad-based shift toward defensive assets. Currency traders also shifted to an increasingly negative stance towards the US dollar. With net short positions hitting their highest levels since October.
USD/JPY weakened, but rebounded near the 142 yen level. This is an area that was previously important, so it shouldn’t be a big surprise. But at this point, I think any rebound should be viewed with caution. Especially near the 146-yen level, a level that was previously support. If we break through the 140 yen level, we will see a sharp decline.
Simply put, the Japanese yen is treated as a safe haven. While the US dollar is now seen as a risky asset. It is difficult to expect this situation to change soon. Which means that traditional factors influencing the dollar against the yen, such as economic data and central bank commentary. Will likely remain secondary considerations beyond the reach of traders over the coming week.
While this is a busy week of economic data. Most scheduled releases appear to be either noisy, outdated, or irrelevant, given the rapidly changing macroeconomic environment. The only events that may cause volatility are U.S. retail sales on Wednesday and Japanese consumer price inflation data on Friday.
