USD/JPY outlook: Currency Pair of the Week – June 2, 2025

The USD/JPY was down in excessive 100 pips at below the 143.00 handle even before today’s main US data came out: ISM manufacturing PMI, which disappointed. Lo and behold, the USD/JPY fell further in the immediate aftermath of the data release, which further increases the probability of a Fed rate cut in September, or potentially July if things get even worse. We maintain a bearish USD/JPY outlook and reckon an eventual break below the 140.00 is likely.

USD/JPY outlook undermined as risk off tone boosts yen’s appeal

Monday’s European session was dominated by investors being in a risk off mode. Haven assets like gold and yen soared, European stocks fell and safe haven assets like gold, silver and yen all gained ground. Investors have been flocking to haven assets amid concerns about the lack of trade progress between the US and China, and mounting debt across developed nations—especially the US and Japan. While a brief spell of trade optimism capped the momentum for some haven assets in May, the tide might be turning again. Trade tensions are at the forefront again and with bond markets wobbling, the USD/JPY outlook remains bleak. The USD/JPY could break below the 140.00 handle if bond yields in the US and Japan resume climbing for all the wrong reasons. June is already proving to be a challenging month. Renewed trade war concerns and upcoming political battles over US tax and spending are giving markets plenty to think about. Meanwhile, with the debt ceiling issue still unresolved in the background, a return of market volatility seems likely.

With the US recently losing its final top-tier credit rating at the hands of Moody’s a couple of weeks ago, investors are worried that debt concerns and government spending will push yields even higher and thus they are shorting Treasuries and the dollar, buying foreign currencies, including the yen.

This mix of risk aversion and fiscal uncertainty creates an ideal environment for the yen to prosper.

More US data to come after a poor manufacturing PMI report

Traders will be keeping a close eye on upcoming U.S. data, as concerns about the health of the world’s largest economy continue to mount. This week’s macro calendar is a busy one, with the spotlight on the April non-farm payrolls report, due Friday, June 6. Given the Fed’s data-driven approach, the outcome of this jobs report could shape rate expectations. Markets will also be watching for signs that trade uncertainty is beginning to impact the labor market—a trend hinted at by recent weakness in consumer sentiment and GDP consumption.

Before the NFP, we’ll also see JOLTS figures and the ISM services PMI—both key indicators that could sway market sentiment and potentially impact the USD/JPY outlook. Today’s release of manufacturing PMI appears to have displeased investors after it came in well short of expectations at 48.5 when 49.3 was expected, meaning it was a big miss.

Technical USD/JPY outlook bearish as more support levels give way

Source: TradingView.com

Thanks to ongoing trade uncertainty and troubles in the bond market, the USD/JPY ended last week on a negative note, after forming an inverted hammer candle on Thursday, which more or less confirmed that the downtrend had resumed.

The fact that we have had more downside follow-through in today’s session means the momentum is building up for potentially an even larger move later in the week. This will especially be the case if support in the 142.00-142.50 region gives way. If that happens, the next stop could be at 140.00.

Resistance meanwhile is seen around 143.00, followed by 144.00.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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