Japanese Yen rebounds from intraday dip against USD as BoJ-Fed policy divergence persists

The Japanese Yen (JPY) briefly dipped to a one-week low near the 151.00 level against the US Dollar (USD) during the Asian session on Monday. However, losses remained limited due to growing expectations of further interest rate hikes by the Bank of Japan (BoJ). Investors continue to price in the possibility of additional tightening, pushing the benchmark 10-year Japanese government bond (JGB) yield to its highest level since November 2009. Additionally, a weakening USD is acting as a headwind for the USD/JPY pair.

Meanwhile, BoJ Governor Kazuo Ueda recently cautioned about the uncertainty surrounding US President Donald Trump's tariff plans and their potential impact on the global economy. This has kept JPY bulls from making aggressive bets, offering some support to USD/JPY. Traders are also awaiting key US macroeconomic data releases this week, starting with the ISM Manufacturing PMI set for release during Monday’s North American session.

Japanese Yen Gains Support from Hawkish BoJ Stance and Softer USD

• Japan's latest economic data indicates strong growth and persistent inflation, reinforcing expectations of further BoJ rate hikes, which continue to bolster the Yen.
• Reports suggest the BoJ may face pressure from the US if Washington concludes that JPY weakness is tied to Japan’s monetary policy.
• Japan’s au Jibun Bank Manufacturing PMI was finalized at 49.0 for February, slightly above the 48.9 flash reading, marking the mildest contraction in three months.
• US President Donald Trump confirmed plans to impose tariffs on Canadian and Mexican imports starting Tuesday, alongside an increase in tariffs on Chinese imports.
• The US Dollar struggled to maintain its gains from Friday, when it had reached a one-week high following key inflation data.
• The US Personal Consumption Expenditures (PCE) Price Index fell slightly to 2.5% in January, down from 2.6% in December, reflecting softer inflation pressures.
• The core PCE Price Index, which excludes food and energy prices, rose 2.6% year-over-year in January, slowing from 2.9% in December.
• Investors are increasingly betting that the Federal Reserve will begin cutting interest rates in June, with another reduction likely in September.
• Traders are closely monitoring the US ISM Manufacturing PMI release later Monday, with a sharper focus on Friday’s Nonfarm Payrolls report.

USD/JPY Faces Resistance Near 151.00, Bearish Risks Remain

From a technical perspective, USD/JPY has encountered strong resistance at the 151.00 level, which previously served as key support. Despite a recovery last week, technical indicators on the daily chart remain in negative territory, suggesting the pair may be vulnerable to further declines.

A decisive break below the psychological 150.00 level could pave the way for a deeper correction, with the next downside targets at 149.80-149.75. Continued selling pressure could drag USD/JPY toward the 149.00 level, followed by 148.60-148.55, marking multi-month lows.

Conversely, a sustained move above 151.00 may trigger a short-covering rally, lifting the pair toward intermediate resistance at 151.70-151.75. A break above the 152.00 level could extend momentum toward the critical 200-day Simple Moving Average (SMA), currently near 152.40. If USD/JPY decisively clears this level, it could signal a trend reversal, opening the door for further gains in the near term.