USDJPY Down As Tariffs Put US Economy At A Crossroads

Summary:
• USDJPY is staring at an extended decline as the US economy prints out successive weak data amid trade tariff complications.

USDJPY extended its downtrend on Monday, going down by 0.5% and trading at 147.19. The currency pair has gained 1.5% in the last month amid rising probability of an interest rate hike by the Bank of Japan and a slash by the Federal Reserve.

Trade Tariffs Put The Fed At A Crossroads

The US dollar is under pressure as investors are concerned over the impact of a trade tariff war on the US economy. Furthermore, the economy has recently been printing out soft economic data, with the latest being the miss by Non Farm Payrolls (NFP) numbers and a spike in unemployment rate in February.

The BoJ is expected to raise interest rates in the coming weeks as Japan’s inflation trajectory remains stable. The country’s labour unions project wages and salaries to rise between 6-7.2% by August, after falling by 1.8% in January-the first decline in three months. Higher earnings are likely to drive inflation higher, hence necessitating interest rate hikes.

Meanwhile, the Federal Reserve is staring at a delicate balancing act between containing the impact of tariff-driven inflation and creating a conducive environment for more jobs. Unemployment rate rose by 0.1% to 4.1% in February, going against analysts forecasts which had anticipated the rate to remain unchanged from January.

In addition, NFP figures came out at 151k, less than the forecast 159k, pointing to a an underlying weakness in the US economy. Japan’s GDP data will be out later on Monday, and that will likely add fresh impetus to the USDJPY trading pair.

USDJPY Prediction

USDJPY pivots at 147.70 and the momentum indicator signals that the sellers are in control. The pair will likely go lower to find the first support at 147.00. However, a stronger momentum will break below that level and could test the second support at 146.70.

On the other hand, breaking above 147.45 will shift the momentum to the upside. That could see the first resistance come at 147.05. An extended control by the buyers will breach that level, invalidating the downside narrative and potentially testing the second resistance at 148.45.