The USD/JPY pair faced heavy selling pressure, dropping to the 142.00 zone during North American trading hours on Monday (4/28). Investor caution has returned as broader trade optimism has eroded, boosting demand for the safe-haven Japanese yen. A temporary recovery in risk sentiment last week had pushed USD/JPY back to 144.00, but the start of the week has seen renewed yen strength ahead of key domestic and US events. Japanese markets remain closed on Monday for Showa Day, but attention is on the upcoming BoJ meeting where policymakers are expected to keep interest rates at 0.50%. However, the Tokyo Consumer Price Index (CPI) excluding fresh food jumped 3.4% year-on-year in March, signaling persistent inflationary pressures that could push the BoJ closer to tightening later this year.

Meanwhile, the US dollar is struggling amid stagnant trade negotiations. Despite Treasury Secretary Bessent's comments about potential progress with Asian countries and China's hopes for easing tensions, China has steadfastly denied that talks are underway, stressing that mutual respect is paramount. Retailers such as Temu and Shein have raised prices significantly for U.S. consumers, reflecting the broader cost of tariffs. Market participants also await a busy economic calendar, starting with the first reading of U.S. Q1 GDP on Wednesday, followed by the Nonfarm Payrolls report on Friday. Both releases could significantly influence the trajectory of Fed monetary policy, with expectations rising for a rate cut if the economic downturn persists into the second half of the year.

The shift from multilateralism to bilateral negotiations under the Trump administration has created long-term structural uncertainty. While clients wonder whether U.S. trade policy can reduce global tariffs, history shows prolonged instability. WTO obligations make unilateral tariff reductions difficult, and bilateral FTA negotiations are a lengthy process, typically taking years to complete and implement. Adding to the complexity, China announced on Monday that it is not engaged in active trade discussions with the U.S., stressing that there are no winners in a trade war. As a result, economic spillovers have intensified, with consumer prices rising sharply in sectors such as retail. On the US side, the DXY remains locked in a tight range near 100.00, awaiting fresh directional cues from data releases this week. Resistance for the DXY is pegged at 100.22 and 101.90, while downside support is at 97.73 and 96.94. Investors are cautious, weighing trade headlines and potential Fed policy shifts.

The BoJ meeting on Friday also holds major significance. While a rate hike is not expected soon, a stronger-than-expected inflation reading and broader global trade disruptions could influence future direction. Expectations for a BoJ rate hike have been pushed back to later this year, with market participants eyeing the September-December window. Overall, the Japanese Yen could strengthen further amid slower global growth and more accommodative policies from other major central banks, including the Fed, BoE and ECB, all of which have signaled readiness to ease if economic risks increase. (Newsmaker23)

Source: FXstreet