Japanese Yen Stays Weak vs. USD as Policy Gap Widens, Fed Cuts Loom

The Japanese Yen remained under pressure on Monday, with USD/JPY trading just below 147.50 during early European hours. The pair extended its modest intraday losses as uncertainty over the Bank of Japan’s (BoJ) next rate hike combined with global risk appetite weighed on the safe-haven currency.

Technical indicators underscore the market’s hesitation. The Relative Strength Index (RSI) holds just above 50, reflecting neutrality, while prices oscillate around the 200-period Simple Moving Average (SMA). Traders describe the current setup as consolidation, with neither bulls nor bears committing ahead of fresh catalysts.

Key technical levels:

• Resistance: 148.00, 148.60, 149.00.
• Support: 147.00, 146.20, 145.30–145.00.

A decisive break above 148 could strengthen bullish momentum, while sustained dips below 146 would signal fresh downside risks.

BoJ-Fed Divergence Drives Outlook

Monetary policy divergence remains a central driver of the yen’s trajectory. While the BoJ has signaled openness to gradual policy normalization, uncertainty persists over when the next rate hike may occur. Political instability at home and the potential drag from higher U.S. tariffs complicate Tokyo’s decision-making.

Recent data, however, supports a cautious tightening path. Japan’s economy expanded faster than expected in the second quarter, and the BoJ raised its inflation forecast—keeping a year-end hike on the table.

Meanwhile, U.S. monetary policy is shifting in the opposite direction. Futures markets price in an 85% chance of a Fed rate cut in September, with at least two 25-basis-point reductions expected in 2025. Yet strong inflation data—including a 3.3% annual rise in the Producer Price Index and higher consumer inflation expectations—has tempered speculation of a larger, 50-basis-point move.

Risk Sentiment and Upcoming Data

The yen also softened as geopolitical tensions eased after talks between U.S. President Donald Trump and Russian leader Vladimir Putin. Markets interpreted the dialogue as a small step toward reducing risks tied to the war in Ukraine, encouraging investors to rotate into risk assets.

U.S. data releases will provide the next set of cues:

• Retail Sales (July): Rose 0.5%, in line with expectations.
• Consumer Sentiment: Fell to 58.6 from 61.7, underscoring fragile household confidence.
• Inflation outlook: One-year expectations climbed to 4.9%, up from 4.5%.

Investors will closely monitor the FOMC minutes on Wednesday and Fed Chair Jerome Powell’s Jackson Hole speech, both expected to clarify the Fed’s rate-cut strategy.

For now, the yen’s downside appears capped by BoJ’s gradual shift toward tightening, but policy divergence keeps the dollar firmly supported near 147.