Before the European session on Thursday, the US dollar against the Japanese yen remained around 142.60, rebounding over 100 points from its multi month low of 141.60 during the day. This rebound is mainly due to the slight stabilization of the US dollar and the marginal recovery of global market risk sentiment, but overall it has not yet shaken off the downward trend of the past three months.

From a technical perspective, the USD/JPY exchange rate of 142.00 provides initial support, and if it falls below it effectively, it may accelerate towards the 141.00 level; However, the short-term rebound may still be hindered by the 143.60 area, and if it breaks through 144.00, it is expected to trigger a greater rebound.

Trade negotiations release positive signals, with slightly weakened demand for safe haven yen

This week, US President Trump stated that significant progress has been made in trade negotiations with Japan and that an agreement is expected to be reached within 90 days. Japanese Prime Minister Shigeru Ishiba also called the dialogue with the US "constructive".

At the same time, Japan's Minister of Economic Revitalization, Ryohei Akazawa, revealed that the US and Japan will hold talks again this month, highlighting their willingness to promote trade dialogue.

If there is a substantial breakthrough in trade negotiations, it may suppress the safe haven appeal of the yen in the short term. "- Kenji Matsuda, Chief Foreign Exchange Strategist at Nomura Securities

Tariff escalation and policy uncertainty drag down market confidence

Despite signals of easing from the US Japan negotiations, overall trade concerns have not eased. Trump recently announced a new round of import reviews for key minerals and high-tech chips, further intensifying trade tensions with Asian countries.

Domestic companies in the United States are also concerned about frequent changes in policy signals, which pose sustained pressure on the US dollar and drive high demand for safe haven assets.

The policy divergence between the Bank of Japan and the Federal Reserve intensifies exchange rate fluctuations

Recently, the market expects the Bank of Japan to raise interest rates again within 2025, and several officials have hinted that if the economic outlook stabilizes, they will gradually withdraw from loose policies. If the current price and economic growth forecasts are realized, the central bank will continue to raise interest rates and adjust monetary support, "said Juniko Hasegawa, a member of the BoJ committee

By contrast, the Federal Reserve may resume its interest rate cut cycle as early as June, exacerbating the relative disadvantage of the US dollar, "according to market research

Although Federal Reserve Chairman Powell emphasized that he is not in a hurry to cut interest rates, the market is still betting on at least three rate cuts by 2025. Despite the recent strong retail data of 1.4%, it has not significantly reversed market concerns about an economic slowdown.

Editor's viewpoint:

Although there has been some progress in the US Japan trade negotiations, the global trade situation is still turbulent, and the direction of Trump's tariff policy is still unclear, which restricts the strength of market risk appetite recovery. At the same time, the divergence in monetary policy between the Bank of Japan and the Federal Reserve has further intensified expectations of yen appreciation.

From the current trend, the short-term rebound of the US dollar against the Japanese yen seems more like a technical repair, and it is still difficult to change the overall bearish structure. Unless the Federal Reserve sends a more hawkish signal or there is a substantial easing in the global trade situation, the yen may continue to maintain its strong position.