Japanese Yen weakens amid fading safe-haven demand after Trump delays tariffs

• The Japanese Yen attracts fresh sellers amid fading safe-haven demand. 
• Worries about Trump's trade tariffs further seem to undermine the JPY.
• The divergent BoJ-Fed expectations should help limit losses for the JPY. 

The Japanese Yen (JPY) drifts lower during the Asian session on Tuesday as US President Donald Trump's decision to delay plans to impose trade tariffs on Canada and Mexico dents demand for traditional safe-haven assets. Adding to this worries that Japan will also be an eventual target for Trump's tariffs further seem to undermine the JPY and lift the USD/JPY pair back closer to the mid-155.00s.

Any meaningful JPY depreciation, however, seems limited amid bets that the Bank of Japan (BoJ) will hike rates further. This marks a big divergence in comparison to expectations that the Federal Reserve (Fed) will lower borrowing costs twice by the end of this year. The resultant narrowing rate differential between Japan and the US should contribute to limiting losses for the lower-yielding JPY. 

Japanese Yen is pressured by Trump's decision to delay tariffs; BoJ rate hike bets favor bulls

• Investors took a sigh of relief after US President Donald Trump agreed to delay 25% trade tariffs against Canada and Mexico by 30 days, undermining the safe-haven Japanese Yen.
• Japan's Prime Minister Shigeru Ishiba is set to meet with Trump later this week and their conversation may provide more hints about the risk of tariffs as Japan has a large trade surplus with the US.
• Japan's Finance Minister Katsunobu Kato said on Monday that the government intends to monitor the impact of Trump's new tariffs on its currency amid worries about the potential economic fallout.
• Bank of Japan's Summary of Opinions released on Monday showed board members agreed that it will be necessary to continue hiking interest rates if economic activity and prices remain on track.
• Moreover, a rise in core inflation in Japan's capital city Tokyo, by the fastest annual pace in nearly a year, keeps alive expectations for further interest rate hikes by the Bank of Japan.
• The Institute of Supply Management's (ISM) Manufacturing Purchasing Managers' Index climbed from 49.3 in the previous month to 50.9 in January, beating expectations for a reading of 49.8.
• Additionally, the Prices Paid Index--which measures inflation--rose to 54.9 from 52.5, while the Employment Index increased to 50.3 from 45.4, and the New Orders Index improved to 55.1.
• This comes on top of speculations that Trump's trade tariffs could push up inflation and give the Federal Reserve less impetus to cut interest rates further, which underpins the US Dollar. 
• The view was echoed by comments from Chicago Fed President Austan Goolsbee, who warned that uncertainty over Trump's policies could delay the central bank's plans to cut interest rates. 
• Separately, Atlanta Fed President Raphael Bostic noted on Monday that although the US labor market remains surprisingly resilient, tariff threats throw a wrench in outlook expectations.
• Meanwhile, Fed governor Michelle Bowman said on Friday that rate cuts are still expected this year but added that future moves should be cautious and gradual, with time to assess data.
• Traders now look forward to the US economic data - Job Openings and Labor Turnover Survey (JOLTS) and Factory Orders - for short-term opportunities later during the North American session.

USD/JPY pair might continue to face stiff resistance and remain capped near the 156.00 mark

From a technical perspective, the USD/JPY pair might continue to confront stiff resistance near the 156.00 mark. This is closely followed by last week's swing high, around the 156.25 region, above which spot prices could climb to the 156.75 supply zone. Some follow-through buying, leading to a subsequent strength beyond the 157.00 round figure, will shift the bias in favor of bullish traders and pave the way for a move towards reclaiming the 158.00 mark with some intermediate hurdle near the 157.50 area. 

On the flip side, weakness below the 155.00 psychological mark now seems to find support near the 154.65 region ahead of the 154.30 area, the 154.00 round figure, and the 153.70 zone, or over a one-month low touched in January. A convincing break below the said support levels could make the USD/JPY pair vulnerable to accelerate the fall towards the 153.00 mark en route to the 152.60-152.55 region and the 152.30 area. The latter represents the 100-day Simple Moving Average (SMA) and should act as a strong base for spot prices.