The Japanese yen lost momentum against the US dollar on Thursday, surrendering most of its intraday gains as traders reassessed the currency’s outlook. A brief rally in the yen was met with renewed demand for the US dollar, driven by firm US Treasury yields and persistent risk aversion.
The greenback remained supported as expectations for a prolonged period of high interest rates in the US kept investor sentiment tilted in favor of the dollar. Federal Reserve officials reiterated their cautious stance, reinforcing market bets that rates may remain elevated for longer than previously anticipated.
Meanwhile, the Bank of Japan’s ultra-loose monetary policy continued to weigh on the yen, limiting its ability to sustain gains. Although speculation of future policy adjustments persists, the central bank has yet to signal any imminent shift, keeping pressure on the currency.
USD/JPY 1-D Chart as of February 28, 2025 (Source: TradingView)
Geopolitical uncertainties and fluctuations in global equities also played a role in the yen’s pullback. Investors sought safety in the US dollar amid concerns over slowing economic growth in major economies, dampening demand for the Japanese currency as a traditional safe-haven asset.
Despite the yen’s retreat, downside risks appear limited in the near term, with traders closely watching developments in global markets and central bank policy signals. A sustained break above key resistance levels in USD/JPY could accelerate further losses for the yen, but intervention risks from Japanese authorities may cap excessive weakness.
Looking ahead, market participants will focus on upcoming US economic data and any shifts in the Bank of Japan’s rhetoric. Volatility in the yen is likely to persist, with traders reacting to evolving macroeconomic conditions and policy expectations.
