Saad Ullah
USD/JPY extended its decline to 152.60 in Friday’s European session as the US Dollar (USD) weakened across the board. Market optimism over eased trade war fears and Federal Reserve policy expectations weighed on the Greenback.
USD/JPY Slides as Market Sentiment Improves
The USD/JPY pair continues its downward movement, reaching 152.60 during Friday’s European session. The US Dollar struggles against major currencies as investors shift toward riskier assets following US President Donald Trump's decision not to immediately impose a reciprocal tariff plan. Instead, he directed Treasury and Commerce officials to work on reciprocity, reducing fears of an imminent global trade war.
This shift in sentiment has pressed the US Dollar Index (DXY), which is now near a four-week low of 106.80.
Fed Policy Expectations Keep USD/JPY Under Pressure
Despite the immediate bearish sentiment, the broader outlook for the USD remains strong. In his two-day testimony before Congress, Federal Reserve Chair Jerome Powell reiterated that the central bank could maintain its restrictive monetary policy for an extended period. Powell emphasized that the Fed will keep interest rates high as long as inflation remains above the 2% target and economic conditions stay resilient.
This stance supports the Greenback in the long run, but short-term fluctuations, influenced by global trade developments, continue to weigh on USD/JPY.
Japanese Yen (JPY) Lags Despite BoJ Policy Hopes
While the US Dollar faces near-term weakness, the Japanese Yen (JPY) is also underperforming against its peers, except the USD. Market participants remain optimistic about the Bank of Japan's (BoJ) potential shift toward tighter monetary policy, but the JPY has yet to capitalize on these expectations.
Investors are betting on the BoJ's continued hawkish stance due to persistent inflationary pressures exceeding the 2% target and the likelihood of further wage increases. However, these expectations have not yet provided enough support for the Yen to strengthen significantly against the USD.
Conclusion
USD/JPY remains under pressure near 152.60, with further downside potential if the risk-on sentiment persists. A break below this level could push the pair toward key support zones, while any renewed USD strength may trigger a rebound. Traders will closely watch upcoming US economic data and any fresh signals from the BoJ regarding its tightening cycle.
Saad Ullah
