Japanese Yen strengthens in reaction to stronger PPI print from Japan

• The Japanese Yen attracts fresh buyers as stronger PPI reaffirms BoJ rate hike bets.
• Hopes for a US-Japan trade deal turn out to be another factor benefiting the JPY.
• A solid recovery in the global risk sentiment could cap gains for the safe-haven JPY.

The Japanese Yen (JPY) regained positive traction during the Asian session on Thursday in reaction to the stronger-than-expected release of the Producer Price Index (PPI), which keeps the door open for further rate hikes by the Bank of Japan (BoJ). Adding to this, the optimism that Japan might strike a trade deal with the US turns out to be another factor underpinning the JPY. This, along with a modest US Dollar (USD) downtick, drags the USD/JPY pair back below the 147.00 round-figure in the last hour.

Meanwhile, hawkish BoJ expectations mark a big divergence in comparison to rising bets for multiple interest rate cuts by the Federal Reserve (Fed) in 2025. This, in turn, fails to assist the USD to capitalize on the overnight bounce from the weekly low and contributes to driving flows toward the lower-yielding JPY. However, a positive turnaround in the global risk sentiment, fueled by US President Donald Trump's announcement to pause reciprocal tariffs on most nations, might cap the safe-haven JPY.

Japanese Yen draws support from hawkish BoJ expectations; lacks follow-through amid a turnaround in the risk sentiment

The Bank of Japan's preliminary report released earlier this Thursday showed that Japan's Producer Price Index (PPI) increased by 0.4% in March and rose 4.2% compared to the same time period last year. The readings were higher than consensus estimates and could push up consumer prices, which, in turn, backs the case for further policy tightening by the BoJ and underpins the Japanese Yen.

US President Donald Trump agreed to meet Japanese officials to initiate trade discussions after speaking to Japan's Prime Minister Shigeru Ishiba earlier this week. US Treasury Secretary Scott Bessent's subsequent comments, saying that Japan may be a priority in tariff negotiations, fueled hopes for a possible US-Japan trade deal and turned out to be another factor that underpins the JPY.

The US Dollar rebounded against safe-haven currencies, including the JPY, on Wednesday after Trump declared an immediate 90-day pause on the big tariff increases for most countries. The announcement eased worries about the global economic impact of US trade policies, triggering a sharp rally in equity markets. The S&P 500 soared 9.5% and registered its biggest daily gain since 2008.

Meanwhile, the minutes of the March 18-19 FOMC meeting revealed that officials almost unanimously agreed that the US economy was at risk of experiencing higher inflation and slower growth on the back of Trump's trade tariffs. Policymakers, however, called for a cautious approach to interest rate cuts, forcing investors to trim their bets for more aggressive easing by the Fed.

Traders now expect the Fed to wait until June to resume its rate-cutting cycle and are pricing in just 75 basis points of rate reductions by the year-end. The USD bulls, however, seem reluctant and opt to wait for the release of the US inflation figures - the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively - before positioning for further gains.

USD/JPY seems vulnerable to sliding further; repeated failures to find acceptance above 148.00 favor bearish traders

From a technical perspective, the USD/JPY pair has been struggling to find acceptance above the 148.00 round figure since the beginning of this week. Moreover, oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone. This, in turn, favors bearish traders and suggests that the path of least resistance for spot prices remains to the downside. Hence, a subsequent slide towards the 146.30 intermediate support, en route to the 146.00 mark, looks like a distinct possibility. Some follow-through selling would expose the next relevant support near the 145.50 region before the pair eventually drops to the 145.00 psychological mark.

On the flip side, the 147.75 zone, followed by the 148.00 mark, could act as an immediate hurdle ahead of the 148.25-148.30 region, or the weekly high touched on Wednesday. A sustained strength beyond the latter would set the stage for an extension of the previous day's goodish rebound from sub-144.00 levels, or the lowest since October 2024, and allow the USD/JPY pair to reclaim the 149.00 round figure. The momentum could extend further towards the 149.35-149.40 area en route to the 150.00 psychological mark.