JPY adds to strong intraday gains a rush to safe-haven assets after Trump’s tariffs

• The Japanese Yen rallies across the board amid Trump’s tariff-inspired global flight to safety.
• The narrowing of the US-Japan rate differential drives flows toward the lower-yielding JPY.
• The divergent BoJ-Fed expectations support prospects for a further USD/JPY depreciation. 

The Japanese Yen (JPY) builds on its strong intraday gains amid the global flight to safety, fueled by growing concerns over the potential economic fallout from US President Donald Trump’s sweeping reciprocal tariffs. This, along with a broadly weaker US Dollar (USD), drags the USD/JPY pair to over a three-week low, around the 147.20-147.15 region during the Asian session on Thursday. 

Meanwhile, expectations that the Bank of Japan (BoJ) will raise interest rates further mark a big divergence in comparison to bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon amid a tariff-driven US economic slowdown. This would result into a further narrowing of the rate-differential between Japan and the USD, which should further underpin the lower-yielding JPY. 

Japanese Yen benefits from heightened safe-haven demand after Trump’s trade tariffs

• The global risk sentiment took a turn for the worst after US President Donald Trump unveiled reciprocal tariffs of at least 10% on all imported goods, sparking concerns over slowing global economic growth. 
• Stock markets around the world plunged in reaction to the US tariffs announcement, lifting the safe-haven Japanese Yen to a three-week high against the US Dollar during the Asian session on Thursday. 
• The anti-risk flow saw most global government bond yields fall, with the yield on the benchmark 10-year US government bond tumbling to the 4.0% neighborhood and hitting a fresh year-to-date low.
• Traders lifted bets that the Federal Reserve will start lowering borrowing costs at the June policy meeting and deliver a total of three 25-basis-point reductions to the policy rate by the end of this year. 
• This, to a larger extent, overshadows Wednesday’s upbeat US ADP report, which showed that private-sector employers added 155K jobs in March, far more than the 105K expected and 84K previous.
• Meanwhile, worries about the impact of harsher-than-expected US tariffs on Japan’s economy forced investors to scale back their bets that the Bank of Japan would raise policy rate at a faster pace. 
• However, the incoming macro data, including strong consumer inflation figures from Tokyo released last Friday, keeps the door open for further BoJ rate hikes, which, in turn, underpins the JPY. 
• Traders now look forward to Thursday’s US economic docket – featuring Weekly Initial Jobless Claims and the ISM Services PMI. The focus, however, will remain on trade-related developments.

USD/JPY bears might now aim to challenge multi-month low, around 146.55-146.50 area

From a technical perspective, the intraday slump below the 100-period Simple Moving Average (SMA) on the 4-hour chart comes on top of the recent breakdown through a multi-week-old ascending channel. This, along with bearish oscillators on the daily chart, supports prospects for a further near-term depreciation for the USD/JPY pair. Hence, a subsequent fall towards the 147.00 mark, en route to the 146.55-146.50 region or a multi-month low touched in March, looks like a distinct possibility.

On the flip side, any attempted recovery might now confront hurdle near the 148.00 mark. A sustained move, however, could trigger a short-covering rally towards the 148.65-148.70 region. That said, a further move up, is likely to attract fresh sellers near the 149.00 mark and cap the USD/JPY pair near the 149.35-149.40 region, or the 100-period SMA on the 4-hour chart. The latter should act as a key pivotal point, which if cleared might negate the negative outlook and pave the way for further gains.