USD/JPY Analysis: Dollar Weakness and BoJ Silence Shape the Trend

Market Sentiment Overview

As markets enter the final trading week of May, the US dollar has extended its slide to a one-month low, following President Donald Trump’s decision to delay 50% tariffs on European Union imports until July 9. This decision, viewed as a temporary easing of trade tensions, came after discussions with European Commission President Ursula von der Leyen and has significantly dented near-term demand for the greenback. The US Dollar Index slid 0.3% in Asia hours and is now on track to erase all gains accumulated in 2024. This dovish policy stance, alongside persistent fiscal concerns surrounding Trump’s extended tax cuts—estimated to add $3.8 trillion to national debt over the next decade—has compounded downward pressure on the USD.

Meanwhile, the Japanese yen has shown moderate strength, supported by regional flows into safe-haven assets as geopolitical and trade uncertainty persists. Media reports indicate that Japanese trade officials are set to travel to Washington in early June for a fourth round of talks. This news provided modest support to the JPY, with USD/JPY dropping marginally on Friday and continuing its bearish momentum into the new week.

Technical Analysis – USD/JPY (H4)

The USD/JPY pair remains in a well-defined downtrend, currently trading around 142.72 and staying capped below a descending trendline that has held since early May. Recent price action has consolidated into a minor bullish flag, but attempts to recover are consistently rejected below the 144.00 handle.

Key Resistance Levels:

143.07 – Immediate resistance and mid-Bollinger Band

144.32 – Major resistance from early May and descending trendline convergence

Key Support Levels:

142.22 – Recent swing low and lower Bollinger Band boundary

A breakdown below 142.22 could target 141.60, followed by psychological support at 140.80

Indicators:

RSI (14) at 33.23 remains near oversold territory, suggesting bearish momentum remains intact

MACD is below zero and flat, confirming lack of bullish conviction

Bollinger Bands are widening to the downside, indicating potential for further volatility

Unless the dollar stages a firm reversal backed by fundamental catalysts or hawkish Fed rhetoric, technical bias favors a continuation of the downtrend.

Fundamental Outlook

Key upcoming events for this week include:

USD:

27 May: CB Consumer Confidence

29 May: GDP (QoQ, Second Estimate), Core PCE Prices, Initial Jobless Claims

31 May: Core PCE Price Index (YoY & MoM), Personal Income & Spending

JPY:

30 May: Tokyo Core CPI (YoY)

31 May: Industrial Production (Prel), Unemployment Rate

With the dollar on the defensive and bond markets closed for the US holiday, the focus will quickly shift to this week’s inflation readings and GDP print. Soft results in PCE or a lower consumer confidence reading could reinforce expectations for Fed easing later in 2025, further dampening dollar demand. On the Japanese side, Tokyo CPI will be closely watched to assess any policy signals from the Bank of Japan, although recent BoJ meetings have yielded minimal market impact.

Conclusion

USD/JPY remains in a vulnerable technical posture, pressured by weakening US fundamentals and trade-driven uncertainty. A sustained break below 142.22 would open the path for a deeper correction toward 141.00, particularly if US data underwhelms. Traders should monitor PCE inflation and Tokyo CPI for volatility triggers. Short-term sentiment remains bearish while below 143.50, with fading safe-haven demand for the USD providing a relative edge to the yen.

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