USD/JPY Cracks Below 143—Is the Yen Set to Rip Toward 138.80 on Trade War Panic?

USD/JPY Forecast: Deepening Bearish Shift as 142.71 Cracks Amid Trade War Chaos and Weak U.S. Momentum

USD/JPY Falls Under 143 as Trade and Tariffs Hammer Sentiment

The USD/JPY pair is weakening under the weight of escalating trade tensions and crumbling U.S. economic signals, trading at 142.71 in a steep descending channel. President Trump’s abrupt doubling of tariffs on steel and aluminum to 50% and China’s threat of retaliation have rocked investor sentiment. The impact is immediate: the Japanese yen, long regarded as a safe haven, is catching a strong bid while dollar assets come under pressure. The resulting uncertainty is amplifying safe-haven flows into the yen and sending USD/JPY spiraling downward.

The technical posture confirms this deterioration. USD/JPY's 50-period EMA on the 1-hour chart sits overhead at 143.77, acting as dynamic resistance. Repeated failures to break above this level, combined with upper wicks and doji candlesticks at resistance, signal strong bearish exhaustion.

US Labor Market Softening: NFP and Claims Shape the Path for USD/JPY

Friday’s nonfarm payrolls are expected to drop sharply to 130,000, down from 177,000, with the unemployment rate steady at 4.2%. Meanwhile, average hourly earnings could tick down to 3.7% y/y, further undermining confidence in wage-driven inflation. The backdrop here matters deeply: the previous core PCE release hit 2.5%, but falling consumer spending on food, apparel, and autos signals underlying weakness. The fact that savings are rising confirms households are growing more cautious—classic recessionary behavior.

Short-term risk is to the downside. If NFP disappoints again, USD/JPY could break through 142.13, opening the way to 141.28 and 140.40. Should the downward momentum intensify, the next technical magnet sits at 138.80, aligned with March swing lows.

Risk Appetite Fades but S&P Correlation Still Drives Intraday Volatility

Despite bearish macro signals, last week’s short-covering rally in USD/JPY was propped up by relative calm in U.S. Treasuries and stable equity flows. The pair maintains a strong +0.84 correlation with S&P 500 futures, and inversely correlates with gold (-0.86) and VIX futures (-0.92). However, this link may not hold if market focus pivots to U.S. labor data and trade policy chaos.

Unlike early May, when yield spreads drove intraday momentum, current price action is being dictated by macro risk. A Fed blackout looms, limiting the influence of Fedspeak as markets await clarity post-payrolls. Bond yields remain rangebound as Treasury auctions fade, but any shift in risk sentiment—especially linked to geopolitical conflict—could spike yen demand and drag USD/JPY sharply lower.

ISM Manufacturing and Services Data Add Fuel to the Decline

The latest ISM Manufacturing PMI fell to 49.3, confirming contraction, while ISM Prices Paid surged to 70.2, complicating the Fed’s inflation narrative. This mix of weak activity and sticky price growth adds pressure to the dollar. On the services side, data remains inconsistent, but recent prints have failed to show the resilience markets hoped for.

The Citi Economic Surprise Index flipped modestly positive in the U.S., but Japan’s index turned negative. However, this divergence isn’t benefiting the dollar as much as it did in Q1. Market participants are increasingly focused on the absolute deterioration in U.S. macro rather than relative performance.

BoJ Policy and Japanese Inflation Provide Limited Lift to USD/JPY

Despite upside surprises in Japan’s Tokyo CPI, the Bank of Japan remains in wait-and-see mode. Governor Ueda and Deputy Governor Uchida are unlikely to issue strong forward guidance this week, especially amid uncertainty around U.S.–Japan trade talks and global inflation trajectories. The BoJ continues to emphasize that wage pressures must persist before it considers policy tightening, but expectations for a BoJ rate hike before year-end are building in some corners of the market.

That said, any boost to the yen from BoJ commentary will be marginal compared to the gravitational pull of U.S. macro weakness and global de-risking.

USD/JPY Technical Setup: 140 in Focus, 146 Capped as Bearish Bias Deepens

The broader technical landscape remains bearish. USD/JPY sits below both the 50-day and 200-day moving averages, with the former sloping downward. RSI (14) is under 50, reflecting fading bullish momentum, and MACD stays negative, reinforcing downside risk. Price action continues to carve out lower highs, with dynamic resistance from the 50 EMA containing rallies.

A break below 142.13 exposes 141.28, followed by 140.00—a critical psychological zone. The May low at 142.43 has already been approached, and with momentum building, 139.87 and 138.80 are increasingly likely as downside targets.

Any upside surprise would need to clear 143.53, followed by 144.42. However, with 146.20 failing to hold in prior sessions, bulls have little room to maneuver unless macro data or risk sentiment radically shifts.

Trade Policy Chaos, Fed Inaction, and Payrolls Converge Into High-Volatility Setup

The Fed enters blackout mode Thursday, locking in expectations for little-to-no new guidance ahead of Friday’s data. Investors are effectively flying blind into the June FOMC, with inflation still sticky, growth data weakening, and policy missteps from the White House piling uncertainty on global markets. The steel and aluminum tariff hike to 50%, combined with China’s threat of escalation, only heightens the volatility landscape.

On the Japanese side, wage growth and household spending data will arrive midweek. While these are unlikely to spark major yen moves in isolation, any strength could reinforce downside bias for USD/JPY, especially if U.S. labor or ISM data misses the mark.

USD/JPY Verdict: Sell Bias Intensifies With 138.80 in Play

This is not a time for neutrality. USD/JPY remains structurally weak beneath 144, and unless Friday’s NFP and unemployment data deliver a bullish shock, the bias remains bearish. The pair is in a confirmed downtrend technically and under pressure from multiple macro angles—U.S. data, trade policy, and global risk aversion.

Verdict: Sell USD/JPY
Target: 140.00, then 138.80
Invalidation: Close above 144.42

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