USD/JPY: Downward Trend

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  Wolfgang Hagl
  Redaktor

The Federal Open Market Committee of the US Federal Reserve has been meeting since yesterday in Washington D.C. Tonight, the committee will present its interest rate decision at 20:00 our time. It is considered a foregone conclusion that the monetary authorities will leave the Fed Funds Target Rate unchanged at the range of 4.25% to 4.50%. US President Donald Trump will therefore probably have to continue to wait for the desired easing of monetary policy. In recent weeks, he has put Fed Chairman Jerome Powell under massive pressure and attacked him personally. Trump called the country’s top monetary watchdog “Mr. Too Late” and a “big loser”. The man under attack did not allow himself to be drawn out of his reserve. Instead, Jerome Powell stuck to his credo: the Fed would first like to wait and see what effect the tariff policy has on the economy and inflation.

Robust labor market

As far as inflation is concerned, the Open Market Committee does not yet have any figures for April 2025. The U.S. Consumer Price Index CPI will not be published until next week. In March, the indicator was 2.4% higher than in the same month last year. The Fed received new data from the labor market just in time for the current meeting. In April, 177,000 non-farm jobs were created in the USA – almost 50,000 more than economists had expected on average. The unemployment rate remained at 4.2%. The tariff hammer swung by Donald Trump at the beginning of April was therefore initially unable to stifle the job engine. However, the president has since suspended some of the levies announced at the time.

It is clear that the US dollar has come under considerable pressure since Trump’s return to the White House. This is also particularly true in relation to the Japanese yen. The USD/JPY currency pair is trading more than 9% below its level at the end of 2024. Of course, this downward movement also reflects a new strength in the yen. The Bank of Japan (BoJ) is in the process of tightening the reins. In January, it raised the key interest rate to 0.50% – the highest level in 17 years. The BoJ is now adopting a wait-and-see stance, not least because of US tariff policy. At its most recent meeting, it left interest rates unchanged and also lowered its growth forecast. For the fiscal year ending in March 2026, the central bank is now forecasting an increase in economic output of 0.5%. Previously, growth of 1.1% had been expected. In the wake of the latest BoJ meeting, the US dollar started the month with momentum. The USD/JPY FX duo rose sharply on May 1. However, the greenback was unable to hold on to its gains.

The target price is

J.P. Morgan has adjusted its interest rate forecast for Japan following the latest monetary policy decision. The US bank’s economists now expect the next easing to take place in October instead of June. Nevertheless, the FX team at J.P. Morgan still expects the yen to appreciate. The experts cite several reasons for this forecast. Among other things, they see a general weakness of the dollar against the backdrop of US trade policy. Furthermore, according to J.P. Morgan, nothing has changed in the BoJ’s fundamental orientation towards tightening monetary policy. Nevertheless, the market has significantly lowered its expectations with regard to interest rate hikes. In this respect, the greater risk now lies in an upward adjustment of forecasts. All in all, J.P. Morgan sees the US dollar at JPY 139 in the medium to long term.

Investment solution

Today’s Fed decision could have a significant impact on this outlook. Even a weak signal from the Fed for an imminent rate cut would probably be enough to deal a blow to the USD/JPY pair. From a technical point of view, the JPY 142 mark would be the first target. Horizontal support awaits here. Support is much more pronounced in the JPY 140 per USD area. The dollar has turned upwards at this level three times since the beginning of 2024. With the mini-future short MUSADV, traders can bet that this important support will be tested again. The Vontobel security converts falling prices in the USD/JPY FX pair into profits with a current leverage of 6.4. At JPY 163.53, the stop loss is 14.4% above the exchange rate. This gap should not obscure the risk of this bet: as soon as the greenback appreciates against the yen, disproportionate losses are incurred.