USDJPY is a popular currency pair that shows the exchange rate between the United States Dollar and the Japanese Yen.
It is mainly driven by fundamental factors such as monetary policy, economic growth, inflation, and geopolitical events.
Let’s analyze the USDJPY pair and try to list some most likely scenarios for 2025 caused by fundamentals, currency trends, and other key factors.
USDJPY pair explained
USDJPY is the second most traded currency pair in the world after EURUSD, which reflects the relationship between two of the largest economies.
The reason why USDJPY is so huge is because JPY is the leading currency in Japan and Asian currency markets.
The yen has a role among traders, and investors see it as a safe-haven currency as it acts as a barometer for market sentiment.
Traders use advanced platforms provided by brokers to access the pair and capitalize on market movements. The most popular trading platform among Japanese investors is MetaTrader 4 (MT4), which has been around for almost two decades. Brokers like Axiory are very strictly regulated and operate in Japan.
Axiory MT4 is a powerful platform that is provided free together with a demo account to develop and test trading strategies.
To access USDJPY, traders can use MT4’s multiple features and even trade with one click. Recent USDJPY movements reflect fluctuations in interest rates, geopolitical events, and inflation.
When we speak about currencies, inflation is a major concern, and Japan is known for the lowest interest rates in the world, which promotes high inflation.
In 2024, the pair started to go down, showing the yen’s strength as BOJ (Bank of Japan) started to raise interest rates, which was almost unheard of historically.
This made the pair go down till September 2024, when the dollar started to gain power as investors awaited Trump to become president.
Key factors impacting USDJPY in 2025
If we list and explain all the factors that will influence the USDJPY in 2025, it will be much easier to define likely scenarios for the pair.
Monetary policy divergence
USDJPY is affected by monetary policies in both the United States and Japan. In the USA, the Federal Reserve (Fed) is responsible for interest rates, and it will be pivotal for the USDJPY pair in 2025.
If there is the expectation of prolonged monetary policy, it will surely strengthen the USD.
In Japan, the BOJ is cautious about exiting the ultra-low interest rates too soon, and any shifts towards more tightening or yield curve control will affect the yen and USDJPY immediately.
The moment you hear the BOJ is about to change interest rates, you should be extremely cautious and observe it closely as it might signal major USDJPY volatility.
Inflation trends
U.S. inflation rates, when higher, cause the Fed to increase rates, which boosts USD strength, and USDJPY will go up as more yen will be necessary to buy USD.
If deflation pressure in Japan is persistent, then we should expect a weaker yen as usual.
This is because the Japanese government usually supports inflation as its main corporations are selling products overseas.
Economic growth prospects
Naturally, if the GDP of the USA shows positive growth, the USD will get stronger, and vice versa, if the Japanese GDP starts to grow rapidly, the yen becomes powerful.
Japan has been in slow GDP growth for years, and the yen is typically weaker than the dollar.
Geopolitical developments
Trade relations between the U.S., Japan, and China will influence investor sentiment, and since Trump promises to be strict against China, we should see very interesting developments in this regard.
The war in Ukraine will also have its effects on USDJPY and the whole world economy.
If it ends, we should observe some positive developments.
Conclusion
The USDJPY will be influenced by several factors in 2025, and there are several scenarios to consider:
- Bullish USDJPY scenario
If the Fed maintains higher interest rates and U.S. economic performance is strong, the dollar will become powerful. Couple this with the BOJ’s hesitation to exit ultra-loose monetary policies, and we might see USDJPY go higher (more yen will be necessary to buy 1 dollar).
- Bearish USDJPY scenario
If the BOJ continues to tighten interest rates and yen inflation remains lower, the yen might show strength, and if the Fed is dovish, USDJPY could go lower (less yen is necessary to buy 1 dollar).
- Geopolitical and external factors
The trajectory of the U.S.-China trade relations can deteriorate considerably, considering Trump’s strict position against China.
Considering the Ukraine conflict scenario, global economic stability might shake substantially in 2025.
Positive resolutions and diplomatic solutions to the aforementioned processes will lead investors to the choice to move from a safe-haven asset such as the yen, and we might see USDJPY go up.
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