BOJ Maintains Rate Amid Inflationary Pressures and U.S. Trade Uncertainty

The Bank of Japan (BOJ) kept its short-term policy rate at 0.5% on Wednesday, citing global economic uncertainty, particularly from U.S. tariffs. Governor Kazuo Ueda acknowledged that Japan’s inflation, driven by rising food prices and wage growth, is stronger than expected. However, the BOJ remains cautious about economic risks and will reassess forecasts in early April. Ueda indicated that while the central bank is monitoring U.S. trade policy, it may not need full clarity before adjusting rates.

Market expectations of a rate hike persist, with analysts predicting an increase by July, possibly as early as May. Japan’s labor negotiations resulted in an average 5.4% pay raise—the highest in 34 years—fueling inflationary momentum. In January, inflation hit 4%, its highest level in two years, while core inflation reached 3% in February, marking its fastest pace in nearly a year. The BOJ’s April and July meetings will be crucial in determining the next policy move.

The yen weakened on Friday, with USD/JPY rising 0.4% despite strong inflation data. Broadly, Asian currencies declined as the U.S. dollar strengthened on expectations of prolonged higher rates. Meanwhile, Japan’s land prices rose at their fastest pace in 34 years, up 2.7%, fueled by a moderate recovery and semiconductor investments. Rising construction costs and potential BOJ rate hikes, however, could pose risks.

Japan’s trade surplus in February was 584.5 billion yen, falling short of expectations as exports grew 11.4% year-on-year, below the forecasted 12.1%. Meanwhile, imports unexpectedly contracted by 0.7%, reflecting weaker domestic demand. However, upcoming wage hikes could support private consumption. Concerns over U.S. tariffs led some Japanese firms to accelerate shipments ahead of potential trade restrictions, which may impact trade trends in the coming quarters.

The U.S. dollar extended its rebound on Friday after the Federal Reserve held interest rates steady, citing persistent inflation and slowing growth. Market expectations of near-term rate cuts diminished, despite former President Donald Trump’s renewed calls for lower rates. The Fed raised its 2025 inflation forecast while slightly lowering economic growth projections, citing risks from tariffs and broader uncertainty.

Federal Reserve Governor Christopher Waller opposed the Fed’s decision to slow balance sheet reductions, arguing that ample banking reserves make the slowdown unnecessary. However, the Fed proceeded with cutting its monthly Treasury runoff cap from $25 billion to $5 billion, citing concerns over potential market disruptions.

Fed policymakers maintained their projection of two rate cuts later in the year but emphasized a cautious approach. New York Fed President John Williams described current policy as appropriate given inflation above 2% and a strong labor market, though he warned of slowing economic growth due to declining immigration.

As a result, the USD/JPY is expected to exhibit moderate upside pressure in the near term, trading within a range between 148.50 and 150.00, as the market anticipates potential actions by both the Bank of Japan (BOJ) and the U.S. Federal Reserve. If the BOJ signals an adjustment, we could see a temporary strengthening of the yen, potentially bringing the pair back toward the 148.00 level. However, the BOJ’s cautious stance and the ongoing trade uncertainties, particularly surrounding U.S. tariffs, are likely to limit significant yen appreciation.

On the U.S. side, market expectations are for the Fed to hold rates steady for the time being, which will likely keep the dollar supported. As a result, the USD/JPY is expected to maintain its upward momentum, with potential resistance around 150.00 and support at 148.50. A break above 150.00 would suggest further upside, possibly pushing toward 152.00, depending on how market sentiment evolves around the Fed’s stance and the BOJ’s actions in coming months. The upcoming BOJ policy meetings and U.S. trade developments will be key catalysts driving the next major move in the pair.

Data for Technical Analysis (1H) CFD USD/JPY

Resistance : 149.27, 149.34, 149.47

Support : 149.01, 148.94, 148.81

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 148.85 – 149.01 is touched, but the support at 149.01 cannot be broken, the TP may be set around 149.35 and the SL around 148.77, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 149.27 – 149.43, TP may be set around 149.68 and SL around 148.93, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 149.27 – 149.43 is touched, but the resistance at 149.27 cannot be broken, the TP may be set around 149.01 and the SL around 149.49, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 148.85 – 149.01, TP may be set around 148.69 and SL around 149.35, or up to the risk appetite.       

Pivot Points Mar 21, 2025 05:09PM GMT