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2 July 2025,03:11

Daily Market Analysis

Yen Extends Gains on Safe-Haven Demand and BoJ Policy Expectations

2 July 2025, 03:11

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Key Takeaways:

*Uncertainty over Trump’s proposed tax cuts and their potential to widen the U.S. deficit have weakened the dollar, boosting safe-haven demand for the yen.

*Signs of improving inflation and growth have raised market expectations for the Bank of Japan to resume policy normalization.

Signs of improving inflation and growth have raised market expectations for the Bank of Japan to resume policy normalization.

Market Summary:

The Japanese yen extended its rally in the latest session, bolstered by a shift in market sentiment driven by rising concerns over U.S. fiscal credibility and renewed demand for safe-haven assets. The catalyst stems from mounting uncertainty surrounding President Trump’s so-called “Big and Beautiful” tax cut bill, which recently cleared the Senate with revisions and is now heading back to the House of Representatives for further approval. If passed, the bill is expected to be signed into law by July.

Markets remain wary of the bill’s long-term implications, particularly its potential to significantly widen the U.S. budget deficit. Investors are increasingly questioning the U.S. government’s fiscal path, which has weighed on the dollar and strengthened appetite for traditional safe-haven currencies like the yen.

Meanwhile, expectations are also building for the Bank of Japan (BoJ) to resume its monetary tightening cycle. With inflation and economic growth showing signs of sustained improvement, market participants anticipate the central bank may take further steps toward normalizing its ultra-loose policy—supporting further upside in the yen.

However, geopolitical risks continue to cloud the BoJ’s policy outlook. Recent tensions in the Middle East and trade frictions with the U.S., including tariff threats, have prompted a more cautious stance from the central bank. Should the ceasefire agreement hold and U.S.-Japan trade negotiations progress smoothly, the BoJ may regain the confidence needed to proceed with rate hikes—potentially fueling additional gains for the yen.

Technical Analysis

USDJPY, H4

The USD/JPY pair has been entrenched in a steady downtrend since topping out above the 148.00 mark last month. The pair has now declined nearly 3% from its recent peak, falling to its lowest level in three weeks—reinforcing a bearish bias in the near term.

A sustained move below the key 143.80 support level would likely confirm further downside potential, signaling renewed selling pressure for the dollar against the yen.

Momentum indicators continue to align with the bearish narrative. The Relative Strength Index (RSI) remains capped below the midpoint, indicating persistent downside pressure, while the MACD is trending lower, reinforcing the strength of the ongoing downtrend.

Unless macro conditions shift or the pair reclaims critical resistance levels, the technical outlook suggests further weakness ahead for USD/JPY.

Resistance levels: 143.80, 145.10
Support levels: 142.70, 141.65

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