The Japanese Yen (JPY) saw a significant pullback from its earlier gains against the US Dollar (USD) on March 20, 2025, despite initial strength. This fluctuation is driven by global uncertainty, continued safe-haven demand, and expectations surrounding the Bank of Japan’s (BoJ) interest rate policy. Although the JPY faced an intraday decline, a bullish bias remains, underpinned by expectations of BoJ rate hikes and global economic instability.

Key Factors Supporting the Japanese Yen's Performance

The Yen’s upward momentum during the early part of the European session on Thursday was largely attributed to growing market expectations that the Bank of Japan will continue to raise interest rates in 2025. Strong wage growth in Japan is expected to boost consumer spending, which could contribute to rising inflation and give the BoJ the flexibility to further tighten its monetary policy. This prospect is narrowing the interest rate differential between Japan and other countries, which supports the JPY, known for its relatively low yields.

In addition to domestic factors, the global flight to safety continues to benefit the Yen. Geopolitical tensions, particularly surrounding US President Donald Trump’s trade policies and uncertainties over his administration's approach to foreign relations, have further strengthened the Yen’s position as a safe-haven asset. These factors led the USD/JPY pair to slide towards the 148.00 level during the session, although a mild uptick in the US Dollar provided some relief and prevented a more significant drop.

BoJ’s Steady Approach and the Divergence Between the Fed and BoJ Policies

The Bank of Japan maintained its key policy rate steady during a two-day review on Wednesday, citing high uncertainty surrounding Japan's economic and price outlook. BoJ Governor Kazuo Ueda emphasized that the central bank aims to implement policies proactively, stressing that achieving the 2% inflation target is crucial for maintaining long-term credibility.

In contrast, the Federal Reserve has held interest rates steady for two consecutive meetings and indicated that it is likely to implement two 25-basis-point rate cuts by the end of 2025. These divergent monetary policies between the BoJ and the Fed are exerting downward pressure on the USD/JPY pair, as investors reassess their expectations for both currencies in light of the contrasting rate outlooks.

Geopolitical Risk and Its Impact on the Yen’s Safe-Haven Appeal

In addition to the BoJ-Fed rate differential, global geopolitical risks have contributed to the Yen’s safe-haven status. President Zelensky of Ukraine and President Trump have agreed to collaborate on ending the Russia-Ukraine conflict, but Russian President Putin rejected a proposed ceasefire, intensifying global tensions. Meanwhile, the situation in the Middle East escalated when the Israeli military launched a limited ground incursion into Gaza, following a breakdown in the ceasefire agreement with Hamas. Israeli Prime Minister Netanyahu’s warnings of a potential expansion of the conflict have increased concerns about further instability in the region.

These developments have pushed investors to seek refuge in safe-haven assets, with gold and the Japanese Yen being primary beneficiaries. The JPY’s role as a safe-haven currency has been reinforced, as market participants seek stability in the face of growing global uncertainties.

Technical Outlook: USD/JPY Pair’s Struggles and Potential for Further Decline

From a technical perspective, the USD/JPY pair has faced challenges in maintaining momentum above the key psychological level of 150.00. After failing to sustain a rally above this level, the pair has begun to slide, suggesting that the recent bounce from a multi-month low may have lost steam. Negative indicators on the daily chart, such as bearish oscillators, reinforce the likelihood of further downside for the USD/JPY pair.

The immediate support for the pair lies at 148.00, and a further decline could take it toward the next major support level near 147.75. If the pair breaks below this level, it could extend its slide toward 147.30, followed by the 147.00 mark and potentially as low as 146.55-146.50, which represents its lowest level since early October 2024.

On the upside, any attempts at a recovery would likely face resistance near the 149.00 level, with a stronger barrier lying at the 149.25-149.30 zone. If the USD/JPY pair can clear this resistance, it could aim to reclaim the 150.00 level. A breakthrough beyond the 150.15 level might trigger a short-covering rally, pushing the pair toward 150.60 and possibly the monthly peak of 151.30.

‍