- The Japanese yen fell against the US yen for the second day in a row.
- Further recovery in US Treasury yields will support the US dollar and support the USD/JPY pair.
- Traders are now eyeing President Trump's speech for fresh stimulus ahead of Friday's Bank of Japan decision.
The Japanese yen (JPY) has recovered a few pips after hitting its lowest in more than a week against the US yen and is trading in neutral territory heading into European trading on Thursday. The yen continues to be supported by widespread belief that the Bank of Japan (BOJ) will raise interest rates at the end of its two-day policy meeting on Friday. Separately, the better-than-expected trade balance data released by Japan turned out to be another factor supporting the yen to some extent.
However, yen bulls appear to be reluctant amid US President Donald Trump's trade policies and ahead of the Bank of Japan's highly anticipated policy decisions. Additionally, a gradual rise in US Treasury yields is providing a tailwind for the US dollar (USD) and the USD/JPY pair. That said, the divergence in policy expectations from the Bank of Japan and the Federal Reserve puts the currency pair ahead of bracing for further gains as traders look to President Trump's speech for fresh stimulus. A certain degree of vigilance is required.
Japanese yen traders appear less enthusiastic ahead of the Bank of Japan's key policy decision on Friday.
- The Japanese yen rose after government statistics were released on Thursday, showing Japan's trade surplus for December was 130.9 billion yen, compared to the expected 55 billion yen.
- This turnaround was mainly due to strong export growth, which exceeded expectations and rose 2.8% year-on-year in December. However, this was a notable slowdown from the previous month's 3.8% rise.
- Meanwhile, imports rebounded after contracting in November to a 3.8% year-on-year decline, rising 1.8% last month, below the consensus estimate of 2.6% growth and showing that domestic demand remains weak.
- Spring wage negotiations opened in Japan on Wednesday, with top business leaders and leaders of the biggest labor unions agreeing on the need to raise wages for more workers amid soaring prices.
- The Bank of Japan, which is scheduled to announce its monetary policy decision on Friday, has reiterated that sustained and broad-based wage increases are a precondition for raising short-term interest rates.
- Markets are pricing in a more than 90% chance that the Bank of Japan will raise interest rates from 0.25% to 0.50% at the end of its January 23-24 meeting, the highest level since the 2008 global financial crisis. It will be.
- This is a sharp departure from market expectations that the Fed will lower borrowing costs at least twice by the end of this year, as there are signs that U.S. inflation pressures are easing.
- Some continued rise in US Treasury yields has helped the US dollar remain stable above Wednesday's monthly lows, providing a tailwind for USD/JPY amid the risk-on mood.
- Investors are now looking forward to the release of weekly new U.S. jobless claims for some stimulus ahead of U.S. President Donald Trump's speech later today and the outcome of the two-day Bank of Japan policy meeting on Friday. There is.
USD/JPY technical setup supports prospects for a move above the 157.00 big mark
From a technical perspective, spot prices found suitable support earlier this week, rebounding from the lower end of a multi-month ascending channel. Subsequent strength above the 156.00 mark and 156.30-156.35 area favors bullish traders. Additionally, the oscillator on the daily chart has started to gain positive traction again, supporting the prospect of further upside. Therefore, the possibility of some follow-through movement toward the 156.75-156.80 area seems obvious on the way to the 157.00 round number. The latter should serve as an important key point, and if it clears conclusively, it will lead to further gains towards the 157.55 area, 158.00 mark, 158.35-158.40 area, and around 159.00 or multi-month tops. The path should be opened. January 10th.
Conversely, the 156.30-156.25 area appears to protect the immediate downside beyond the 156.00 mark. The next relevant support is anchored around the 155.55-155.50 area, below which the USD/JPY pair could accelerate its decline towards the psychological mark of 155.00, which is currently in an ascending channel. Matches the lower limit. A follow-through sell below the 154.80-154.75 range or above Tuesday's one-month low would be seen as another trigger for bearish traders, with spot prices moving towards the 154.00 round figure on the way to the mid-153.00s. will be pushed up. 153.00 marks.
Fed Frequently Asked Questions
Monetary policy in the United States is shaped by the Federal Reserve Board (Fed). The Fed has two responsibilities: achieving price stability and promoting full employment. The main tool to achieve these goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, interest rates will be raised, increasing borrowing costs for the entire economy. This makes the US a more attractive place for international investors to put their money, and the US dollar (USD) appreciates. If inflation falls below 2% or unemployment is too high, the Fed could lower interest rates to encourage borrowing, which would weigh on the dollar.
The Federal Reserve (Fed) holds eight annual policy meetings where the Federal Open Market Committee (FOMC) assesses economic conditions and decides on monetary policy. Twelve Federal Reserve officials will attend the FOMC meeting. Seven board members, the president of the New York Fed, and four of the remaining 11 regional reserve bank presidents will serve rotating one-year terms. .
In extreme circumstances, the Federal Reserve may resort to a policy called quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stalled financial system. This is a non-standard policy tool used in times of crisis or when inflation is extremely low. This was the Fed's weapon of choice during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, in which the Federal Reserve stops buying bonds from financial institutions and reinvests the principal of maturing bonds to buy new bonds. Never. It is usually positive for the value of the US dollar.
