Japanese Yen Continues to Slide As Bank of Japan Disappoints Markets

Economic

Forex

Summary:

The USD/JPY pair surged to 149.58 on Wednesday, marking its fourth consecutive day of gains as the Japanese yen extended its dec

The USD/JPY pair surged to 149.58 on Wednesday, marking its fourth consecutive day of gains as the Japanese yen extended its decline. The Bank of Japan’s (BoJ) latest policy decision failed to inspire confidence, leaving investors underwhelmed and further weakening the yen.

Key factors driving USD/JPY movement

As expected, the Bank of Japan maintained its benchmark interest rate at 0.5% while reiterating its forecast that the Japanese economy will grow above its potential level. However, the central bank also acknowledged emerging signs of economic fragility, adopting a cautious tone in its outlook. Policymakers emphasised the need to gather and analyse more data before making significant moves, particularly in light of global economic risks.

A key concern is the potential impact of US tariff hikes, which could weigh heavily on Japan’s export-driven economy. Investors are now closely monitoring comments from BoJ Governor Kazuo Ueda for further insights into the central bank’s strategy and future policy direction.

Recent data has painted a mixed picture of Japan’s economic health. The monthly Reuters Tankan survey revealed growing pessimism among Japanese manufacturers in March, citing concerns over US trade policies and China’s slowing economy. On a brighter note, Japan’s trade balance shifted to a surplus in February, driven by robust export growth. However, this improvement has done little to strengthen the yen amid broader market concerns.

Technical analysis of USD/JPY

On the H4 chart, USD/JPY is forming a bullish wave structure, targeting 150.20. Upon reaching this level, a corrective pullback to 149.20 is possible, likely establishing a consolidation range near the current highs. A breakout above this range could signal further upward momentum, with the next target at 151.80. This scenario is supported by the MACD indicator, with its signal line remaining above zero and trending upwards.

The H1 chart shows USD/JPY developing a growth wave toward 150.20, representing the midpoint of the third wave in the current structure. A consolidation range is expected to form around 149.62, with an upward breakout potentially opening the path to 151.80. The Stochastic oscillator corroborates this outlook, with its signal line above 50 pointing upward.

Conclusion

The Japanese yen’s decline reflects market disappointment with the Bank of Japan’s cautious stance and lack of decisive action. While Japan’s trade balance has shown improvement, concerns over global economic risks and domestic manufacturing sentiment continue to weigh on the currency. From a technical perspective, USD/JPY remains in a bullish trend, with key resistance levels at 150.20 and 151.80. Traders should monitor BoJ Governor Ueda’s statements and upcoming economic data for further clues on the yen’s trajectory.

Source: ACTIONFOREX

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Glendon

Economic

Forex

(Bloomberg) -- Euro-area inflation slowed more than initially reported in February, strengthening arguments for the European Central Bank to keep cutting interest rates.

Consumer prices rose an annual 2.3% — less than the 2.4% Eurostat first flagged. Wednesday’s revision follows an unexpected drop in Germany’s inflation rate.

With the outlook for economic expansion and inflation in Europe clouded by uncertainty, ECB officials debating whether to pause or lower borrowing costs again next month may be tempted to focus on the clear progress in reaching their 2% target.

There have been other encouraging signs: Wage growth has moderated, inflation expectations remain anchored and gains in services prices have begun to ease.

What Bloomberg Economics Says...

“The broad inflation outlook remains relatively benign. The ECB has already cut its deposit rate by 150 basis points since the cyclical peak and, at 2.5%, borrowing costs are in the vicinity of what we think is neutral. Absent a big surprise, we therefore expect the Governing Council to adopt a more cautious approach to further easing, with the next rate cut coming in June.”

—Jamie Rush, chief European economist.

But there are also risks that inflation will rebound. Trade tensions with the US, and a jump in defense and infrastructure spending could yet drive prices higher more quickly.

The ECB already pushed back the timeline for reaching its target to early next year, with President Christine Lagarde arguing that policymakers must be “extremely vigilant” and agile in responding to data as they arrive.

Economists surveyed by Bloomberg still predict two more rate cuts — in April and June — before the deposit rate settles at 2%. Markets are torn on what will happen next month, though they’re leaning toward two moves in total before year-end.

Source: Yahoo Finance

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Warren Takunda

Economic

Yes, a massive spending deal has been agreed upon, but implementation and embedded structural constraints in the German economy mean it can only go so far.

The Euro is at risk of "buy the rumour, sell the fact" price action after German politicians passed a law allowing the government to ramp up spending on defence and infrastructure.

The German Bundestag agreed to a €500BN infrastructure fund and changes to the debt brake to allow for nearly unlimited defence spending and for state governments to borrow more.

Despite the law being passed, the Euro was unable to advance further against the Pound Sterling, the Dollar and other major peers, confirming that much of the spending 'bazooka' is now 'in the price'.

Carsten Brzeski, Global Head of Macroeconomics at ING, says the market sees the chances of a cyclical rebound in the German economy on the back of positive sentiment effects from increased spending. However, some challenges remain.

"How long this cyclical rebound will last and whether it could become a structural recovery will now highly depend on whether or not the official coalition talks will eventually lead to real structural reforms. Otherwise, today's fiscal package will only be a very huge flash in the pan," he says.

The Euro has risen in the wake of incoming chancellor Friedrich Merz's announcement that he would seek to change the debt brake to boost spending. The Pound-to-Euro exchange rate has fallen 2.0% since the decision, and analysts at Goldman Sachs have subsequently slashed their forecasts for the pair.

The Euro-to-Dollar has fallen 5.60%, prompting a raft of forecast upgrades for the single currency.

However, all indications point to building caution.

"As with reunification, a fiscal expansion does not guarantee success: the next government will need to deliver structural reforms to turn this fiscal package into sustainable growth," says Robin Winkler, Chief German Economist at Deutsche Bank.

Berenberg economists say the planned spending boost will raise German economic growth and inflation to 2.4% in 2026 and 2.5% in 2027, up from 2.3% in 2025.

Expectations for higher German inflation rates have boosted German bond yields relative to elsewhere as investors demand greater compensation for holding German debt. Increased yields, meanwhile, attract investor cash, boosting currency flows that support the Euro.

This raises the question of how much higher bond yields can go, because if the trend can extend, so too would the Euro's rally.

Euro Rally Fades as German 'Bazooka' Trade Maxes Out_1

Above: EUR/GBP has risen as the difference between UK and Germany bond yields (lower panel) shrinks.

Berenberg economist Holger Schmieding says more German public spending justifies higher bond yields, but he sees limits from here.

"We find the knee-jerk surge in yields by 40-50bp after Germany had unveiled the plan to loosen the debt brake somewhat overdone," he explains. "A permanent rise in German (and Eurozone) 10-year bond yields by up to 30bp relative to a scenario without Germany’s fiscal U-turn seems more adequate to us."

Economists at Capital Economics agree that German bond yields are reaching a limit and "will remain around its new level."

A decline in bond yields would weigh on the Euro.

"We forecast a drop back in the euro," says Hubert de Barochez, an economist at Capital Economics.

Currency analysts at Commerzbank have warned the Euro could be set to fall "quite sharply" in the coming weeks as "euphoria" over Germany's spending plans fades.

The timing of the fiscal impact will have lags and Commerzbank economists do not expect Germany's planned stimulus to have an effect until next year at the earliest.

They also warn Germany has historically struggled to spend, even when the money is made available.

"This year, growth in the euro area could even be weaker if Trump follows through on his tariff announcements on EU imports in the near future. In short, we expect the EUR-USD exchange rate to fall quite sharply in the coming weeks," says Michael Pfister, FX Analyst at Commerzbank.

Nevertheless, most analysts agree that the significance of the reforms in Germany will have a positive knock-on effect on other sectors of the economy and in neighbouring European economies.

Germany's most-watched confidence survey, from ZEW, showed strong growth in expectations in March:

"The brighter mood is likely due to positive signals regarding the future German fiscal policy, for example, the agreement on the multi-billion-euro financial package for the federal budget," says Achim Wambach, President of ZEW.

"Prospects for metal and steel manufacturers as well as the mechanical engineering sector have improved. Last but not least, the sixth consecutive interest rate cut by the ECB means favourable financing conditions for private households and companies," he adds.

According to Nick Kennedy, FX Strategist at Lloyds Bank, Germany's shift is "a rare bullish development for the EUR and Eurozone. This is still a potentially significant structural shift in market and economic dynamics, with several positive layers to it."

So while the Euro's rally could fade, setbacks might prove to be shallow and 2025's lows might be in the rear view mirror.

Source: Poundsterlinglive

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Warren Takunda

Economic

Asian stocks were subdued on Wednesday and gold hovered near record highs as economic worries and a shifting geopolitical landscape kept risk appetite in check, while the yen was slightly weaker after the Bank of Japan held rates as expected.

Investor focus will now be on Governor Kazuo Ueda's post-meeting press conference at 0630 GMT as well as the Federal Reserve's policy decision later on Wednesday, where the U.S. central bank is also expected to hold rates steady.

The listless mood looks set to continue in Europe, with EUROSTOXX 50 futures 0.11% higher and DAX futures little changed.

The yen was last at 149.79 per dollar, a tad weaker on the day as policymakers sought to spend more time gauging how mounting economic risks from higher U.S. tariffs could affect Japan's fragile recovery.

Rising odds of the Japanese central bank raising interest rates have helped push the yen 5% higher against the dollar so far this year, with it touching a five-month high of 146.545 per dollar last week. Japan's Nikkei was flat.

Having just raised interest rates in January, the BOJ board voted unanimously to maintain the bank's short-term policy rate at 0.5% at a two-day meeting that ended on Wednesday.

Traders will parse Ueda's comments for clues on how soon the BOJ could next raise rates, a decision complicated by the contrast between benign domestic data and uncertainty caused by U.S. President Donald Trump's trade policies.

"In the end, however, it is a question of 'when' not 'if' the BOJ will hike again," said Fred Neumann, chief Asia economist at HSBC.

"The next move could come as early as June, as more evidence of wage increases trickles in. The uncertain global trade outlook, however, could even push the next BOJ rate hike well into the second half of 2025."

with the Dow dropping 0.6%, the S&P 500 shedding over 1%,

The euro eased a bit but was close to the five-month high it reached on Tuesday after Germany's parliament approved plans for a significant increase in spending, handing conservative leader and the Chancellor-in-waiting Friedrich Merz a huge boost. It last fetched $1.093175.

Geopolitical tensions escalated as Israeli airstrikes pounded Gaza and killed more than 400 people on Tuesday, shattering nearly two months of relative calm since a ceasefire began, unnerving investors.

Adding to the unease, Russian President Vladimir Putin agreed to temporarily stop attacking Ukrainian energy facilities but refrained from endorsing a full 30-day ceasefire.

That left investor sentiment fragile and market moves muted, with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.27%.

Indonesian shares swung between gains and losses in choppy trading on Wednesday, a day after the stock market there clocked its sharpest fall in nearly three years on Tuesday, on concerns over the government's fiscal strategy.

U.S. stocks fell sharply on Tuesday as investors exercised caution ahead of a monetary policy decision from the Federal Reserve, while gauging the potential impact of Trump's tariff policies.

"There’s a lot of uncertainty around tariffs, geopolitics and U.S. economic activity," said Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management.

"Investors are waiting for direction from the Fed tonight and then President Trump in the coming days."

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The BOJ's decision came hours before the policy decision from the Fed, where the focus will be on new economic projections from policymakers as well as comments from Fed Chair Jerome Powell.

The dollar index , which measures the U.S. currency against six rivals, was steady at 103.34, hovering near the five-month low it touched in the previous session.

"The Fed, just like the market, desperately needs some visibility on trade, tariffs and overall policies," said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management.

"We expect Powell to avoid ifs and buts and instead continue to advocate for a data-dependent approach."

Traders are pricing in 58 basis points of easing this year from the Fed, with the first cut fully priced in for July, LSEG data showed.

In commodities, Brent crude futures eased 0.5% to $70.2 a barrel, while U.S. West Texas Intermediate crude slipped 0.54% to $66.53.

Gold prices rose to record high of $3,045.24 per ounce on Wednesday as geopolitical jitters led to safe-haven flows.

Source: Reuters

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Blue River

Technical Analysis

FundamentalOverview

The USD continues to remainunder pressure against most major currencies despite higher Core PCE estimatesfollowing the US CPI and PPI reports, and a better-than-expected Retail Sales data on Monday.

The market pricing for theFed went from expecting more than 80 bps of easing by year-end at the peak ofthe risk-off sentiment to roughly 59 bps as of now. That didn’t provide apullback in the US Dollar selloff though. The focus now switched to the FOMCdecision due later today where the Fed is expected to keep rates steady.

On the GBP side, the recentnews on European defence spending boosted the pound as well given that the EUis UK’s largest trading partner. On the domestic front, the data continues toput the BoE in an uncomfortable position given the high wage growth and stickyinflation. The BoE is expected to keep rates unchanged tomorrow with a 7-2 votesplit. The market expects just two rate cuts by the end of the year.

GBPUSDTechnical Analysis – Daily Timeframe

GBPUSD Daily

On the daily chart, we cansee that GBPUSD is trading at the 1.30 handle. From a risk managementperspective, the buyers will have a better risk to reward setup around the support zone around the 1.28 handle where they willalso have the upward trendline for confluence. The sellers, on the other hand,will look for a break below the support to increase the bearish bets into the majortrendline around the 1.26 handle.

GBPUSD Technical Analysis– 4 hour Timeframe

GBPUSD 4 hour

On the 4 hour chart, we cansee that the pair is trading inside a rising channel. The buyers will likelylean on the bottom trendline to position for further upside, while the sellerswill look for a break lower to pile in for a pullback into the support zonearound the 1.28 handle.

GBPUSD TechnicalAnalysis – 1 hour Timeframe

GBPUSD 1 hour

On the 1 hour chart, there’snot much we can add here as the buyers will look for a bounce around the bottomtrendline, while the sellers will look for a break lower. The red lines definethe average daily range for today although they will likelybe unreliable today due to the FOMC event.

Source: ForexLive

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Warren Takunda

Economic

Germany’s parliament has passed a historic spending bill enabling the government to finance hundreds of billions of euros in defence and infrastructure.

The passage marks a major fiscal shift for a country long constrained by spending austerity under the so-called 'debt brake' introduced in 2009.

While investors remain broadly optimistic about the landmark spending package, the reform has wider implications for Germany’s equity markets and government bonds.

The spending bill, championed by Germany’s conservative CDU/CSU leader and Chancellor-in-waiting Friedrich Merz, will allow defence spending to exceed 1% of Gross Domestic Product (GDP), amounting to approximately €45bn, with no upper limit.

Additionally, the plan includes a €500bn special fund for infrastructure investment over the next twelve years, with €300bn allocated to the federal government, €100bn to state governments, and €100bn to the Climate Transition Fund. The bill will also raise the borrowing limit for state governments from 0% to 0.35% of GDP.

The lower house of parliament, the Bundestag, passed the bill with 513 votes in favour and 207 against, comfortably exceeding the two-thirds majority required to amend the constitution. However, the legislation still requires approval from the Bundesrat, which represents Germany’s 16 federal states, in a vote scheduled for Friday. Merz faces urgency in securing the legal change before a new parliament is formed next week, as opposition parties could seek to overturn the decision.

How investors see the landmark spending package

Germany’s benchmark DAX index extended a three-day winning streak, rising 0.98% on Tuesday and briefly reaching a record high. Cyclical stocks, including Rheinmetall, Bayer, Continental, and ThyssenKrupp, surged between 4% and 10% before pulling back.

“Implemented in the right way, investment in infrastructure should lead to at least a cyclical upswing,” wrote Carsten Brzeski, global head of macro at ING, in a report on Tuesday.

“The chances of a cyclical rebound in the German economy on the back of positive sentiment effects and later actual spending have clearly increased.”

However, he also cautioned that the spending package would "do very little to improve the economy’s competitiveness" due to persistent structural challenges.

The landmark fiscal reform is expected to reinvigorate Germany’s economy, which has contracted for two consecutive years amid surging energy-driven inflation, weak government spending, and high interest rates. The country has faced mounting pressure to relax its borrowing constraints, which currently cap the government’s deficit at 0.35% of GDP.

However, volatility may persist in Germany’s bond market due to concerns over rising fiscal deficits. Bond yields—representing government borrowing costs—saw their largest weekly increase since the 1990s at the start of March, as investors demanded higher risk premiums in anticipation of an unprecedented surge in public debt.

“We anticipate that European bond markets will remain volatile as they digest the implications of such a significant increase in government debt entering the market, as well as the potential for higher borrowing costs in the long term,” wrote Roger Hallam, global head of rates, and Shaan Raithatha, senior economist at Vanguard, in a report last Friday.

“The 4 March announcement only strengthened our conviction in our view of German bund underperformance,” they added, referring to Merz’s spending plan.

Germany’s 10-year bund yield was little changed at 2.81% on Tuesday, as markets had largely priced in the bill’s approval. However, yields remain at their highest level in nearly 18 months, reflecting ongoing concerns about the country’s fiscal outlook.

Source: Euronews

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Michelle

Economic

Forex

(Bloomberg) -- The Bank of Japan signaled worries over the potential impact from US tariff policies and kept its benchmark rate unchanged, hinting that it’s not in a rush to hike for now.

The central bank added a reference to trade policies to its list of risks to the outlook, its statement showed Wednesday. With around two weeks to go before details of President Donald Trump’s additional reciprocal tariffs come out, Governor Kazuo Ueda’s board voted to keep the policy rate steady at 0.5% at the end of a two-day gathering, a result that was in line with the expectations of all 52 economists surveyed by Bloomberg.

The yen weakened as much as to 150 to the dollar following the release, but regained losses as Ueda spoke in the afternoon.

The stand-pat decision comes as domestic economic signals suggest further scope for raising interest rates in Japan even as the international landscape darkens and central banks elsewhere in the world mull the timing of rate cuts.

“Wages and prices are on track,” Ueda said during his press conference in the afternoon. “But it’s difficult to judge how much closer we are to achieving our goal when uncertainties over the US and overseas trade policies are high.”

The Federal Reserve is expected to deliver two reductions this year beginning in September, holding steady for now when it makes its next rate decision later in the day, keeping the rate differential with Japan wide.

What Bloomberg Economics Says...

“The economy looks solid enough to bear another rate hike, which we think will come in May. With the spring wage negotiations (shunto) yielding big pay increases again this year, the positive wage-price cycle is shifting into a higher gear — supporting underlying inflation around the 2% target.”

— Taro Kimura, economist

Japan’s biggest umbrella group for labor unions said last week that early results from annual wage talks were the most robust in 34 years, in a positive sign for personal spending. Meantime, the nation’s overall inflation rate sped up to 4% in January, the highest among Group of Seven economies.

The outlook for the global economy has taken a turn for the worse as Trump forges ahead with his tariff campaign. Ueda said last week he was “very much” concerned about the global economy in light of trade tensions. On Monday the OECD cut its world growth forecast to 3.1% for 2025 to account for disruptions to global commerce.

The BOJ’s additional reference to risks from trade policies indicates growing concerns over the potential impacts from rising tides of protectionism around the world. The change may cool speculation in the market about the chance of a rate hike when the board delivers its next decision on May 1.

“There is a very high level of uncertainty about US policy, and I think there will be companies that may hold back on capital investment and production plans against this background,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “As for the domestic situation, wage talks are producing high results and prices are continuing to rise, so I think things are progressing as the BOJ has forecast.”

For now the BOJ has some time for watching developments after last hiking the rate two months ago. With inflation trends staying more or less in line with the bank’s projections, most economists expect the bank to wait until June or July to raise its policy rate.

The BOJ governor’s tone overall on Wednesday suggested that the BOJ wants to see what Trump announces on April 2 regarding reciprocal tariffs.

“We’d like to review things once the situation’s a little clearer in early April,” Ueda said.

This week’s meeting marks the one-year anniversary of Ueda’s decision to end the massive monetary easing program by ditching the world’s last negative interest rate regime.

A key question for the BOJ is whether concerns about developments overseas might make it cautious enough to pause its rate hike path longer than the roughly six-month gap that BOJ watchers currently expect between each move.

Until now there was enough bullishness surrounding domestic data that some 50% of surveyed analysts saw the earliest possible timing for a rate change coming at the next meeting.

Bond traders were parsing Ueda’s remarks, given the steep upward trajectory in bond yields. Japan’s 30-year bond yields recently rose to the highest level since 2006 and benchmark 10-year yields this month hit the highest level since 2008.

Ueda indicated little inclination to step into the market to stop the ascent, saying that now is not the time, while repeating the official stance that they’ll act if there are sudden moves. The governor dismantled the BOJ’s yield curve control mechanism a year ago.

Source: Yahoo Finance

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Japanese Yen Continues to Slide As Bank of Japan Disappoints Markets

Key factors driving USD/JPY movement

Technical analysis of USD/JPY

Conclusion

Source: ACTIONFOREX

Euro-zone Inflation Revised Down As Ecb Ponders Cut or Pause

Source: Yahoo Finance

Euro Rally Fades as German 'Bazooka' Trade Maxes Out

Above: EUR/GBP has risen as the difference between UK and Germany bond yields (lower panel) shrinks.

Source: Poundsterlinglive

Asian Stocks Meander, Yen Soft as BOJ Stands Pat on Rates

FED UP NEXT

Source: Reuters

GBPUSD Technical Analysis – Fomc And Boe Decisions in Focus

FundamentalOverview

GBPUSDTechnical Analysis – Daily Timeframe

GBPUSD Daily

GBPUSD Technical Analysis– 4 hour Timeframe

GBPUSD 4 hour

GBPUSD TechnicalAnalysis – 1 hour Timeframe

GBPUSD 1 hour

Source: ForexLive

How Will Germany's Debt Reform Impact Its Stock and Bond Market?

How investors see the landmark spending package

Source: Euronews

Boj Holds Rates, Noting Unease Over Potential Tariff Impacts

Source: Yahoo Finance

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