- Following the release of Japan's trade balance statistics, the Japanese yen has attracted some sellers.
- Expectations that the Bank of Japan will keep interest rates unchanged and rising US bond yields are also weighing on the yen.
- Traders are eagerly awaiting key FOMC decisions ahead of Thursday's Bank of Japan policy update.
The Japanese yen (JPY) failed to capitalize on the previous day's modest recovery gains against the US yen, attracting new sellers in Asian trading on Wednesday. Japan's trade balance unexpectedly improved in November on the back of strong export growth, but a decline in imports pointed to weakness in domestic demand, data released today showed. This, coupled with an uncertain economic outlook amid concerns over US President-elect Donald Trump's tariff plans, reaffirmed expectations that the Bank of Japan (BOJ) will keep interest rates on hold later this week, hurting the yen. It becomes.
Meanwhile, expectations that the Federal Reserve's dovish stance will weaken, as well as expectations that President Trump's policies could lead to increased government borrowing and higher inflation, continue to push Treasury yields higher. It supports the rise. This proved to be another factor weighing on the low-yielding yen, but the easing of risk tone should help limit more severe losses. Additionally, yen bears may refrain from making aggressive bets and may choose to stay on the sidelines in the face of major central bank event risk. The Fed is expected to announce its decision later today at the end of its two-day meeting, followed by the Bank of Japan's monetary policy update on Thursday.
Japanese yen continues to decline due to uncertainty about Bank of Japan interest rate hike
- Japan's trade deficit unexpectedly improved in November to 117.6 billion yen, compared with a deficit of 462.1 billion yen in October, according to a report released by Japan's Ministry of Finance on Wednesday.
- The improvement was driven by strong export growth in November, up 3.8% year-on-year, on the back of a weaker yen and a recovery in demand from Japan's largest trading partners, the United States and China.
- However, this positive indicator is offset by a 3.8% decline in Japanese imports, which, along with expectations that the Bank of Japan will not raise interest rates later this week, is attracting new sellers around the yen.
- Benchmark 10-year Treasury yields rose to their highest level since Nov. 22, following the release of U.S. retail sales data that underpinned strong consumer spending and economic resilience.
- The Commerce Department reported that retail-level sales rose 0.7% in November, compared with a 0.5% increase in the previous month, while non-automobile sales rose 0.2%, lower than expected.
- Meanwhile, the report had little impact on market expectations that the Federal Reserve would cut borrowing costs by 25 basis points for the third time this week at the end of its two-day policy meeting later Wednesday. Ta.
- But signs of progress toward returning inflation to the central bank's 2% goal suggest the Fed may take a more cautious stance and pause its rate-cutting cycle at its January policy meeting. There is.
- Investors will therefore be scrutinizing the latest economic forecasts, including the so-called dot plot, as well as Powell's comments at the Fed's post-meeting news conference for clues about the path to rate cuts.
- Market attention will then shift to a key BOJ policy decision scheduled during Thursday's Asian session, which should further contribute to providing new direction stimulus for the USD/JPY pair.
USD/JPY may face resistance near 154.00. Bullish potential seems to be alive and well
From a technical perspective, the emergence of Wednesday's bullish buying comes on top of the recent breakout through the all-important 200-day simple moving average (SMA), favoring bullish traders. Furthermore, the oscillator on the daily chart has gained positive traction and is still far from overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. However, further gains could face resistance near the 154.00 mark ahead of the 154.45-154.50 area, or near the three-week high set on Monday. A continued move above the latter should pave the way for a move towards recovery of the 155.00 psychological mark. This momentum could further build towards the next relevant hurdle around the mid-155.00s on the way to the 156.00 mark and 156.25 supply zone.
Conversely, the 153.15 area, the overnight swing low, appears to be protecting the near-term downside. A follow-through sell below the 153.00 mark could pull the USD/JPY pair back towards the all-important support of the 200-day SMA at 152.15. Failure to protect the aforementioned support levels could shift the bias in favor of bearish traders and accelerate the decline towards the spot price towards 151.00 on its way to the psychological mark of 150.00.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by trends in Japan's economy, but more specifically by factors such as the Bank of Japan's policies, the difference in Japanese and U.S. bond yields, and traders' risk sentiment.
One of the Bank of Japan's missions is exchange control, so its trends are key to the yen. The Bank of Japan occasionally intervenes directly in currency markets, generally to devalue the yen, but does not do so frequently due to political concerns in major trading partners. The Bank of Japan's ultra-easy policy from 2013 to 2024 widened the policy divergence between the Bank of Japan and other major central banks, causing the yen to weaken against major currencies. Recently, the gradual easing of this ultra-easy policy has provided some support to the yen.
Over the past decade, the Bank of Japan's commitment to ultra-easy monetary policy has widened its policy divergence from that of other central banks, particularly the US Federal Reserve. This confirmed the widening gap between US 10-year bonds and Japan's 10-year bonds, which favored the US dollar against the Japanese yen. The gap is narrowing with the Bank of Japan's decision to gradually abandon its ultra-easy policy in 2024, coupled with interest rate cuts by other major central banks.
The Japanese yen is often seen as a safe investment. This means that when markets are under stress, investors are more likely to put money into the Japanese currency, which is expected to be reliable and stable. Times of turmoil are likely to increase the value of the yen against other currencies that are considered riskier investments.
