Data Clash, Sentiment Out of Control! Yen Still Consolidating

Reuters Finance APP News — On Tuesday, March 24, the USD/JPY exchange rate continued to consolidate below the 160 level, currently trading around 158.70. Short-term support remains near 157.65, with resistance concentrated around 159.80. Market focus quickly shifted to the latest developments in US-Iran negotiations. Trump announced a five-day ceasefire via social media to promote a comprehensive resolution to hostilities, but Iran quickly denied any substantive talks, causing the dollar to weaken briefly before stabilizing, with the exchange rate showing clear range-bound characteristics. This geopolitical uncertainty, combined with Japan’s recent soft inflation data, has shaped the current market pattern for USD/JPY. Traders are closely assessing the interaction between risk sentiment and divergence in central bank policies.

US-Iran Negotiation Uncertainty Dominates USD Safe-Haven Support

Trump announced on social media that over the past two days, there had been “very good and productive” talks with Iran, and instructed relevant departments to suspend attacks on Iran’s energy infrastructure for five days. This statement initially triggered a broad dollar decline, but Iran’s parliamentary spokesman Ghalibaf quickly clarified that no negotiations had taken place with Washington. This conflicting signal quickly calmed initial market volatility, and USD/JPY stabilized after falling back to the 158 range.

Currently, traders prefer to wait for official clarification or substantive progress. Repeated reports of conflict have amplified volatility, making it difficult for USD/JPY to break above the 160 psychological level in the short term. If positive signals emerge from negotiations, the dollar could face further downside pressure. Conversely, if tensions persist, the dollar will continue to be supported, and the exchange rate may test higher resistance levels.

Japan’s Softening Inflation Data Worsens Yen Weakness

Japan’s Statistics Bureau released February consumer price index (CPI) data showing a year-on-year increase of 1.3%, down from 1.5%, the lowest since March 2022; core CPI (excluding fresh food) fell to 1.6%, also below the Bank of Japan’s 2% target. This confirms ongoing downward pressure on inflation, with energy price subsidies and slowing gains in some goods dragging down the overall figure.

Key recent Japanese inflation data comparison:

Meanwhile, early results from spring wage negotiations show an average wage increase of 5.26%, exceeding 5% for the third consecutive fiscal year, with base wages rising by 3.85%. Despite strong wage growth, inflation has not kept pace, and real wages remain in decline, posing potential downside risks to domestic consumption and economic growth. Traders should watch for wage pass-through effects on prices; if energy prices fluctuate due to geopolitical events, this transmission could accelerate. Currently, the data indicates inflation pressures are not yet sustainable above 2%, keeping the yen under continued pressure.

Bank of Japan Policy Path vs. Relative Strength of the US Dollar

BOJ Governor Ueda recently emphasized that if the results of spring wage negotiations outperform expectations and temporary downward pressures do not harm the underlying inflation trend, the central bank will maintain its tightening bias. However, he also noted that geopolitical risks could amplify growth concerns via energy prices, and the BOJ prefers to observe the situation with Iran and the US before making further decisions. The BOJ’s policy rate remains at 0.75%, with market expectations of possibly one more rate hike this year, though the probability has been revised downward due to weak inflation.

In contrast, although the US economic fundamentals have not shown major positive signals, geopolitical uncertainties provide additional support for the dollar. The USD index briefly dipped on negotiation news but quickly recovered. Traders are watching for the BOJ’s cautious stance in a low-inflation environment, which makes it difficult for the dollar’s relative strength to reverse in the short term unless there is a breakthrough in negotiations.

FAQs

Q1: Why did conflicting reports on US-Iran negotiations cause the USD/JPY to quickly stabilize rather than continue falling?

A: Trump’s announcement of a five-day ceasefire initially boosted risk appetite, leading to dollar selling. However, Iran’s parliamentary spokesman Ghalibaf quickly denied any substantive talks, which immediately rekindled doubts about the negotiations’ authenticity. The dollar’s safe-haven appeal reasserted itself. After assessment, traders believed that geopolitical uncertainty had not been substantively resolved, causing the exchange rate to stabilize. This process highlights how news events can amplify short-term sentiment, but without official confirmation, a sustained trend is unlikely.

Q2: Why does the yen remain weak despite Japan’s February CPI softening and a 5.26% wage increase?

A: Although spring wage negotiations showed a 5.26% increase, exceeding 5% for three consecutive years, inflation has fallen to 1.3%, with core CPI at 1.6%, both well below the BOJ’s 2% target. Wage growth has not effectively transmitted into higher prices, and energy subsidies have suppressed inflation expectations. The BOJ remains cautious, avoiding premature rate hikes that could threaten growth. As a funding currency, the yen’s weakness persists under these conditions, and the dollar remains relatively strong against the yen.

(Editor: Wang Zhiqiang HF013)

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