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• The Japanese Yen attracts some intraday sellers amid a combination of negative factors.
• Calls for the BoJ to slow tapering beyond 2026 and a positive risk tone undermine the JPY.
• The divergent BoJ-Fed policy expectations should cap any meaningful upside for USD/JPY.

The Japanese Yen (JPY) is looking to extend its retracement slide from a one-week low touched against a broadly recovering US Dollar (USD) during the Asian session on Tuesday. Calls for the Bank of Japan (BoJ) to either maintain or ease the pace of its bond purchase tapering beyond fiscal 2026 underscore challenges that the central bank faces in removing its massive monetary stimulus. This, along with a generally positive tone around the equity markets, undermines the safe-haven JPY, which, along with a modest USD bounce from a multi-week low, lifts the USD/JPY pair to the 143.25 area, or a fresh daily high in the last hour.

Meanwhile, BoJ Governor Kazuo Ueda reiterated in the Japanese parliament earlier today that the central bank will continue raising interest rates if the economy and prices move in line with forecasts. This marks a big divergence in comparison to bets that the Federal Reserve (Fed) will lower borrowing costs further this year, which should cap the USD and benefit the lower-yielding JPY. Moreover, persistent geopolitical risks and trade-related uncertainties should keep a lid on the market optimism, which further backs the case for the emergence of some dip-buying around the JPY. This, in turn, warrants some caution for the USD/JPY bulls.

Japanese Yen bulls have the upper hand amid BoJ rate hike bets
 

• A former Bank of Japan board member Makoto Sakurai said this Tuesday that the central bank is expected to halt its quarterly reductions in government bond purchases starting next fiscal year. Sakurai noted that authorities are concerned that continued reductions could push yields higher, making it harder to manage the economy and government debt.
• Minutes of a meeting between the BoJ and financial institutions held in May revealed that the central bank received a sizable number of requests to maintain or slightly slow the pace of tapering in its bond purchases from fiscal year 2026. The BoJ will conduct a review of its current taper plan at its next monetary policy meeting scheduled on June 16-17.
• BoJ Governor Kazuo Ueda reiterated earlier today that the central bank will continue to raise interest rates if the economy and prices move in line with forecasts. Ueda, however, cautioned that it is important to make a judgment without any preset ideas as uncertainties over overseas trade policies and economic situations remain extremely high.
• Meanwhile, the current market pricing indicates around a 70% chance that the Federal Reserve will deliver at least two 25 basis points interest rate cuts by the end of this year. Moreover, Chicago Fed President Austan Goolsbee said on Monday that the US central bank would lower short-term rates once the uncertainty surrounding tariff policies is resolved.
• On the economic data front, the Institute for Supply Management (ISM) survey published on Monday showed that economic activity in the US manufacturing sector contracted for a third straight month in May. The ISM Manufacturing PMI receded to 48.5 from 48.7 in April and came in below analysts’ estimates of 49.5, which should cap the US Dollar.
• Russia and Ukraine held a second round of negotiations on Monday to find a way to end the three-year war amid escalating conflict. In fact, Ukraine launched a surprise attack on Russian airbases, while Russia deployed a record-breaking 472 one-way attack drones as well as several ballistic and cruise missiles against Ukraine just before the peace talks.
• Russia, meanwhile, rejected an unconditional ceasefire and said that it would only agree to end the war if Ukraine gave up big new chunks of territory and accepted limits on the size of its army. This keeps geopolitical risks in play, which, in turn, should further contribute to limiting any meaningful depreciation move for the safe-haven JPY.
• Traders now look forward to the release of the US JOLTS Job Openings data, which, along with speeches by influential FOMC members, will drive the USD demand and provide some impetus to the USD/JPY pair. The focus, however, will remain glued to the US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.

USD/JPY remains vulnerable while below 200-hour SMA, near 147.70
 

From a technical perspective, the overnight breakdown below the 143.65-143.60 horizontal support, which coincided with the 200-hour Simple Moving Average (SMA), was seen as a key trigger for the USD/JPY bears. The said area should now keep a lid on any further intraday move-up. A sustained strength beyond, however, might trigger a short-covering rally and lift spot prices to the 144.00 mark. The momentum could extend further, though it runs the risk of fizzling out near the 144.40-144.45 supply zone.

On the flip side, weakness back below the 143.00 mark could find some support near the Asian session low, around the 142.40-142.35 region. This is followed by the 142.10 area, or last week's swing low, below which the USD/JPY pair could resume its recent downfall from the May monthly swing high. Spot prices might then weaken to the next relevant support near the 141.60 area before eventually dropping to sub-141.00 levels.

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