The US Dollar (USD) is falling in value compared to the Japanese Yen (JPY) due to changing economic conditions and central bank outlooks for both currencies. As of now, the USD/JPY pair has dropped below the significant level of 144.00, which was once a support level but now acts as a barrier, indicating a strengthening bearish outlook for the US Dollar.
A primary reason for the recent weakness in the USD is the downgrade of its credit rating by Moody’s on Friday, following similar actions by S&P and Fitch. The downgrade from AAA to AA1 reflects growing concerns about the long-term fiscal path of the US, especially with President Donald Trump’s proposed “One Big Beautiful Bill Act.” This bill, seeking to prolong and expand Trump-era tax cuts, could potentially increase the US deficit by $3.8 trillion over the next ten years, as estimated by the Congressional Budget Office (CBO). This news has made investors more cautious about the USD, as it could disrupt debt markets and trigger a reassessment of the US’s creditworthiness.
Meanwhile, in Japan, the Yen is gaining traction due to its traditional role as a safe-haven currency and changes in its domestic policies. The Bank of Japan (BoJ), known for its loose monetary policy, has recently indicated a willingness to raise interest rates in response to rising inflation and wages. Comments from BoJ officials suggest a possible rate hike later this year, showing a departure from their previously dovish stance.
Additionally, Japanese Prime Minister Kazuo Ueda has emphasized the need to address the large interest rate differences between Japan and the US, which have historically weighed on the Yen. By closing these gaps, Japan could support its currency and reduce inflation from imported goods, which remains a concern despite improved domestic demand.
Given these developments, the USD/JPY pair is likely to remain unstable. Traders will closely monitor upcoming US economic data, Federal Reserve statements, and the House vote on Trump’s tax bill. Similarly, the market will pay attention to BoJ policy signals and fiscal comments from Japanese officials. For the time being, the bearish trend in the USD/JPY pair is expected to continue, especially if investors prefer safer assets like the Yen.