The currency couple USD/JPY continues its upward trend and breaks through the resistance zone between 146.5 and 147. It has reached the highest level since the second half of June. The prospects for the currency couple have changed significantly recently after it had fallen back significantly from its latest high in early 2025. A crucial breakthrough of this recent resistance brand could continue to increase towards the 150 mark Signal where the 50.0 fibonacci retracement of the previously downward shaft and the sliding 200-period average assemble. So what drives the recent weakness of the yen?
►USDJPY WKN: 965991 - ISIN: XC0009659910 | Ticker: USD/JPY
It was generally expected that the Bank of Japan (Boj) This year would take a course of interest rate increases, but the last increase took place in February. Nevertheless, the Boj has remained exceptionally restrictive compared to the past decades and a half, since interest rates have been at the highest level since 2008 and has been a throttling of bond purchases since 2024. Interestingly, despite persistently high inflation, which was 3.5 % in May (after 3.6 % in April), the Boj refrained from further interest rate increases. It is noteworthy that Japan recently recorded a strong increase in food prices, with travel prices rose by over 100 % in May, which is a significant challenge for less wealthy sections of the population. The current Boj dilemma is economic growth, or rather its decline, which in the first quarter was at annualized -0.2 %, albeit better than the expected -0.7 %.
Economic growth, in turn, is increasingly at risk from the escalating trade war. The one of Donald Trump Proposed tariffs of 25 % on all Japanese products are unacceptable for export -oriented country. The tariffs of 25 % to automobiles were a significant hurdle beforehand. Analysts of UBS Warn that the tariffs could have Japanese GDP shrinked by 0.8 percentage points this year, in the worst case by almost 2 percentage points.
The deteriorating prospects for Japan lead to a change in investor’s mood, which could possibly lead to a revival of carry-trade strategies. The number of long positions has recently declined from an extremely high level while the short positions have increased. Source: Bloomberg Finance LP, XTB
If the resistance to the 38.2 %fibonacci retracement and the upper limitation of the rising trend channel are clearly broken, the price target would be around 150. Conversely, persistent resistance and increasing demand for the yen could lead to a new decline towards the lower limitation of the rising trend channel. Source: XStation55
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