USD/JPY Drops to 144.90—Court Drama, BoJ Pressure Shake FX Bulls

USD/JPY retreats as legal shocks rattle bullish momentum

The USD/JPY pair, which had rebounded aggressively toward the 146.00 handle earlier this week, is now retreating near 144.90 in European hours. This pullback comes after a five-session rally that initially broke above the 50-day simple moving average and formed a bullish engulfing candle—signaling buying strength. However, the momentum has faltered as the U.S. dollar index (DXY) softens near 99.90, erasing early gains amid political and legal turbulence surrounding U.S. tariff policy.

US court ruling triggers renewed volatility for USD/JPY

A critical driver behind the recent reversal is the U.S. Court of International Trade’s decision to declare President Trump’s broad tariffs unlawful. The court ruled that Trump overreached his authority by invoking emergency powers under the IEEPA for long-standing trade deficits, which it said do not constitute a legitimate emergency. The decision imposed a permanent block on the majority of Trump-era tariffs, except those specifically targeting sectors like autos and semiconductors. This development sharply altered market sentiment and the legal uncertainty is beginning to bleed into USD/JPY positioning.

The Biden administration is appealing the ruling to the U.S. Supreme Court, but the immediate effect has been reduced trade war fears and unwinding of previous safe-haven JPY flows. The initial reaction lifted U.S. stock futures and temporarily propped up the dollar. However, as markets digested the news, the pair failed to hold above 146.00 and sellers regained control.

USD/JPY technical setup faces key resistance and support levels

From a technical standpoint, USD/JPY’s rally stalled just above 146.00—the level where the 50-day SMA converged with prior horizontal resistance. If bulls regain momentum, they’ll face the next ceiling at 148.65, the May high, with the 200-day SMA parked at 149.45 as a longer-term barrier.

On the downside, the first line of support sits at the round number of 145.00, followed by 142.10—the recent bounce point. A break below 142.10 would represent a lower low and reintroduce a bearish trend. The RSI has dipped but remains above 50, keeping momentum slightly biased toward buyers for now.

Japanese inflation and BoJ rate outlook cloud yen’s direction

While the USD side of the pair is under pressure due to domestic legal and economic uncertainty, the JPY is struggling with its own fundamental dynamics. Tokyo CPI data is expected to show a modest rise to 3.5% YoY, up from 3.4%, keeping inflation above the Bank of Japan’s target. A hot CPI reading would reinforce expectations for another BoJ rate hike—an outcome that could strengthen the yen and drive USD/JPY lower.

Yet, despite inflationary pressure, the BoJ has shown caution. Rate hikes have been symbolic and slow, and even with rising Tokyo prices, the policy path is far from aggressive tightening. Traders are pricing in only one more BoJ hike this year, and any deviation in tone from the central bank could add another layer of uncertainty to yen positioning.

Trade diplomacy and court chaos raise macro-level friction

In the broader macro landscape, Japan’s Trade Minister Ryosei Akazawa confirmed his upcoming visit to Washington for a fourth round of negotiations. He was non-committal about the U.S. court ruling’s impact on bilateral trade policy but acknowledged that Tokyo would “thoroughly examine” the judgment. His muted tone reflects the diplomatic fragility and shows how USD/JPY is now tightly tethered to a delicate legal and geopolitical dance between two of the world’s largest economies.

Meanwhile, economic calendar events like U.S. GDP data and jobless claims add short-term noise. However, the market’s core focus remains squarely on how the U.S. Supreme Court responds to the appeal, and whether the Fed maintains a patient stance amid conflicting inflation signals and policy uncertainty.

Fed and BoJ divergence narrows as both sides confront pressure

The Federal Reserve, per its latest FOMC minutes, signaled a cautious path forward on interest rates, citing the need for patience due to tariff-related ambiguity. At the same time, expectations for rate cuts in the U.S. remain, even if delayed. The BoJ, by contrast, is inching toward incremental tightening—but at a glacial pace.

This narrowing divergence in monetary policy is key to the recent fade in USD/JPY. Earlier in the year, rate differentials had aggressively favored the USD, pushing the pair well above 150. But with BoJ hawkishness rising and the Fed potentially entering a neutral-to-dovish phase, the carry trade advantage has begun to shrink.

Positioning outlook: is USD/JPY still a buy?

With the pair struggling near 145.00 and broader USD strength losing steam, traders must now reassess. On the bullish side, if the 145.00 level holds and inflation surprises in the U.S. remain elevated, the pair could resume its march toward 148.65. A break above 149.45 would trigger technical tailwinds with potential for a run toward the psychological 150.00 mark again.

But the legal turbulence, growing BoJ hawkishness, and diminishing Fed rate hike expectations create a complicated landscape. As a result, positioning is now tilted more cautiously, especially for institutional traders wary of a sudden court-related shock.

The Japanese yen’s weakness from safe-haven outflows is not structural—it’s temporary. If market risk flares again or trade war rhetoric escalates, USD/JPY could experience sharp reversals. Short-term traders eyeing technical rebounds should watch for a confirmed break above 146.00 before entering long. But without that, risk remains to the downside.

Verdict: HOLD USD/JPY as momentum stalls near 145.00 amid legal and inflation fog

Despite initial strength, the USD/JPY rally has clearly paused. With macro headwinds on both sides, technical resistance holding, and the legal drama surrounding U.S. tariff policy far from over, the pair is in limbo. This is not a clean bullish setup—nor is it ripe for aggressive selling.

The most disciplined position here is HOLD. Wait for clarity from the courts, confirmation from inflation prints, and a breakout above 146.00 or breakdown below 142.10 to act decisively. Until then, the pair will continue to chop between headlines and CPI prints.

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