The dollar weakened against the yen, with USD/JPY falling 0.8% to 145.20 as markets responded to softer U.S. inflation data and Japan's surprisingly resilient GDP growth of 0.2% in Q1, which significantly outperformed expectations of a 1.1% contraction.
Diverging Central Bank Policies
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Create account Try a demo Download mobile app Download mobile appBoJ Deputy Governor Shinichi Uchida reaffirmed the central bank's hawkish stance, stating they "will keep raising rates if the economy and prices improve as projected." This contrasts with the Federal Reserve's increasingly dovish outlook after April's CPI edged down to 2.3% year-on-year. Markets have now priced in approximately 56 basis points of Fed rate cuts by December 2025, up from 49 basis points previously expected.
Trade Relations and Outlook
The 90-day U.S.-China tariff reduction agreement initially sparked optimism, but concerns persist about long-term trade policy. Japanese Prime Minister Shigeru Ishiba has opposed any U.S. trade deal excluding automobile provisions, highlighting potential challenges for Japan's exports. The dollar's medium-term outlook against the yen appears increasingly bearish as the monetary policy divergence strengthens, with Goldman Sachs revising its three-month USD/JPY target to 142.50.
USDJPY (D1)
The USDJPY is currently trading around its 30-day EMA, a key short-term level. Bulls will aim to break above the 50-day EMA at 145.82 to regain control, while bears are eyeing a retest of the previous lows at 142.390. The RSI is on the verge of breaking a bullish divergence, suggesting potential weakness in momentum. Meanwhile, the MACD is tightening, signaling indecision and calling for caution in the near term.
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