The USD/JPY exchange rate remained under pressure this week as the US Dollar Index (DXY) declined. It also retreated as traders reacted to a statement by Jerome Powell and as they waited for the upcoming US nonfarm payrolls data.

The USD to JPY exchange rate retreated to a low of 142.70 on Monday and then pared back some of these losses to 143.50. It remains 9.56% below its highest level this year.

US Dollar Index crash continues

The USD/JPY exchange rate has declined significantly over the past few months due to the ongoing decline in the US Dollar Index (DXY). The index, which tracks the dollar’s performance, has dropped to a low of $96, its lowest level in years. 

Its crash accelerated this week after Jerome Powell refused to rule out cutting interest rates as early as this month’s meeting. In a statement at a European Central Bank (ECB) meeting, Powell hinted that the bank would make its decision based on the available data.

He also said that the bank will not hesitate to cut interest rates if it the upcoming data shows that the labor market deteriorated and inflation fell. This was the first time that he agreed that the bank may decide to cut rates this month. 

Still, the market is not buying this view as the odds of a July cut remain low. Instead, most analysts expect that the bank will cut rates by 0.25% in its September meeting.

Goldman Sachs analysts expect the bank to cut rates three times this year and possibly several more times in 2026. This is one reason why the US Dollar Index has plunged. 

The DXY Index also plunged after the US Senate voted for Trump’s spending bill that introduces tax cuts and improves on regulations. This bill is expected to leave the US worse off as its deficit is expected to get worse over time. 

Looking ahead, the USD/JPY exchange rate will react to ADP’s nonfarm payroll data on Wednesday and the official nonfarm payroll figure on Thursday this week. 

Bank of Japan and the US deal

The other catalyst for the USD/JPY exchange rate is the potential deal between the US and Japan as Trump’s deadline nears. While the two countries have made progress on these talks, Japan has resisted US pressure on inflation. 

The lack of a deal between the two countries will hurt Japan more because of the volume of business it does with the United States. It will also hurt its automobile companies at a time when they are facing stiff competition from Chinee companies. 

Meanwhile, the Bank of Japan’s governor has insisted that it needs more data to determine when to cut rates. He is watching the strength of the underlying inflation, effects of US tariffs, and food inflation. 

Recent data showed that inflation rose to a two-year high in May, higher than its target level. As such, a rate hike cannot be ruled out later this year, making it the most hawkish central bank.

USD/JPY technical analysis

Technicals suggest that the USD/JPY exchange rate has remained under pressure this year. It has formed an inverse cup-and-handle pattern, a bearish continuation sign. 

This pattern comprises of a rounded top and a handle and often leads to more downside. It is now forming the handle section. Also, it remains below the 50-day and 100-day Exponential Moving Averages (EMA).

Therefore, the pair will likely continue falling, with the next target to watch being the lower side of the cup at 139.98. A move below that level will point to more downside, potentially to 135.

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