- The Japanese yen attracted new sellers on Tuesday as expectations for a Bank of Japan rate hike wavered.
- As concerns about President Trump's tariff plans ease, risk sentiment increases and the yen weakens.
- The rise in US bond yields due to the Fed's hawkish stance supports USD bulls and supports USD/JPY.
The Japanese Yen (JPY) attracted some intraday selling during Tuesday's Asian session and appears to have ended its three-day winning streak against the US for now. Comments from Bank of Japan Deputy Governor Ryozo Himino further heightened uncertainty over when the central bank is likely to raise interest rates again. Separately, risk-on impulses, reinforced by reports that US President-elect Donald Trump's senior economic advisers are considering gradual increases in tariffs, are hurting the safe-haven Japanese yen. .
Moreover, the Federal Reserve's hawkish turn in December dashed hopes for an immediate narrowing of the Japan-U.S. yield gap and was another factor prompting capital outflows from the low-yielding Japanese yen. It turned out that This has helped stall the USD/JPY pair's retracement decline from last Friday's multi-month high, but intraday gains have stalled around the 158.00 mark. As fears of devastating trade tariffs ease under Trump 2.0, U.S. Treasury yields edged lower and U.S. dollar (USD) bulls defended below two-year highs, putting the pair at the upper end. is decided.
Japanese yen bulls remain on the sidelines amid doubts over BOJ's interest rate hike plans
- Bank of Japan Deputy Governor Norami Himi said on Tuesday that although there is a possibility of further interest rate hikes, the Bank of Japan needs to carefully monitor a variety of domestic and overseas risks.
- Additionally, some investors expect the Bank of Japan to wait until April to see if the strong wage momentum carries over into spring negotiations before raising rates again.
- Minister of Economy, Trade and Industry Yoshinari Akazawa said that the Bank of Japan's interest rate hike consideration and the government's goal of overcoming deflation are not inconsistent, and that the Bank of Japan and the government are cooperating well.
- US President-elect Donald Trump's incoming economic team is considering a program to gradually increase import tariffs over the coming months, Bloomberg reported on Monday.
- The proposal, aimed at preventing a sharp rise in inflation, would cause a modest drop in U.S. Treasury yields and prompt profit-taking in the dollar, which has climbed above two-year highs.
- On the back of the Fed's hawkish outlook, Friday's upbeat US non-farm jobs report raises questions about the possibility of a rate cut in 2025 and should support the US dollar.
- Benchmark 10-year U.S. Treasury yields are retreating from 14-month highs as investors look to key inflation trends, including the producer price index, later today.
USD/JPY faces rejection near the all-important hurdle of 158.00. Downside room appears limited
From a technical perspective, overnight resilience below the 157.00 mark and subsequent rally, along with a positive oscillator on the daily chart, favors bullish traders. That said, a failure near the 158.00 round number during the day would indicate that it would be wise to wait for sustained strength above the above handle before aiming for additional upside. The USD/JPY pair could then pick up momentum towards the intermediate hurdle at 158.55 on its way to a multi-month ceiling around the 158.85-158.90 zone. A follow-through buy above the 159.00 mark would set the stage for further upside towards the next relevant hurdle near the mid-159.00 range before the spot price aims to recover the psychological mark of 160.00.
On the other hand, the 157.00-156.90 area may continue to protect the near-term downside. Any further decline could be seen as a buying opportunity in the 156.25-156.20 area or near last week's swing low. This should help limit the downside of USD/JPY around the 156.00 mark, and a decisive break of this would shift the short-term bias in favor of bearish traders, paving the way for a meaningful correction downside. may be opened.
Bank of Japan Frequently Asked Questions
The Bank of Japan (BoJ) is Japan's central bank, which determines the country's monetary policy. Its mission is to issue paper money and exercise monetary and financial control to ensure price stability, which means an inflation target of about 2%.
The Bank of Japan launched an ultra-easy monetary policy in 2013 to stimulate the economy and promote inflation in a low-inflation environment. The bank's policy is based on quantitative and qualitative easing (QQE), or printing money that provides liquidity by buying assets such as government bonds and corporate bonds. In 2016, the bank doubled down on its strategy, first introducing negative interest rates and then further easing policy by directly controlling the yield on 10-year Treasuries. In March 2024, the Bank of Japan raised interest rates, effectively retreating from its ultra-accommodative monetary policy stance.
The yen has weakened compared to major currencies due to the World Bank's large-scale economic stimulus package. This process is expected to worsen in 2022 and 2023 due to widening policy divergence between the Bank of Japan and other major central banks, which opted for significant rate hikes to combat the highest levels of inflation in decades. did. The Bank of Japan's policies have widened the gap between the yen and other currencies, and the value of the yen has fallen. This trend partially reversed in 2024, when the Bank of Japan decided to abandon its ultra-accommodative policy stance.
Japan's inflation rate has risen due to a weaker yen and soaring global energy prices, exceeding the Bank of Japan's 2% target. The prospect of domestic salary increases, a key driver of inflation, also contributed to the move.
