- The Japanese yen has strengthened against the US dollar, but there is a lack of bullish confidence due to uncertainty from the Bank of Japan.
- Upbeat market sentiment and rising U.S. bond yields could help keep the low-yielding yen in check.
- Traders will focus on Thursday's US macro data, which the Fed will release ahead of Friday's Japanese national CPI.
The Japanese yen (JPY) continues to hold an advantage against the US yen through Asian trading ahead of Bank of Japan (BOJ) Governor Kazuo Ueda's appearance later this Thursday. Ueda's insights on the economic outlook, inflation and the timing of another rate hike will play a key role in influencing the yen. On the other hand, uncertainty surrounding further policy tightening by the Bank of Japan could deter yen bulls from making aggressive bets.
Meanwhile, U.S. Treasury yields remain buoyant on expectations that President-elect Donald Trump's proposed policies could reignite inflation and force the Federal Reserve to slow its rate-cutting path. It's rising. This will continue to be a tailwind for the US dollar (USD) and, along with a positive risk tone, should limit the rise in the low-yielding Japanese yen. Investors may prefer to wait for Friday's release of the national core consumer price index (CPI).
Japanese yen bulls do not seem to be proactive amid uncertainty about the Bank of Japan's interest rate hike and positive risk tone
- Earlier this week, Bank of Japan Governor Kazuo Ueda gave markets speculation on how quickly and at what pace the Bank of Japan would tighten monetary policy.
- Investors are pricing in an even chance that the Bank of Japan's final policy meeting of the year, on Dec. 18-19, will decide to raise interest rates by 25 basis points or leave them unchanged.
- According to reports, the economic measures proposed by Akazawa, Minister in charge of Economic Revitalization, are expected to cost around 21.9 trillion yen.
- Comments from Russian and U.S. officials allayed market fears of a nuclear war breaking out, dampening demand for traditional safe-haven currencies.
- Policies proposed by President-elect Donald Trump could stimulate inflation and slow the Federal Reserve's path to lower interest rates.
- Additionally, Fed policymakers' cautious comments on further policy easing continue to support rising US Treasury yields and strength in the US dollar.
- Federal Reserve Board member Lisa Cook said Wednesday that the central bank could be forced to pause rate cuts if inflation slows.
- Separately, Fed Director Michelle Bowman said inflation appears to be stalling and the Fed should pursue a cautious approach.
- Boston Fed President Susan Collins said further interest rate cuts are needed, but policymakers need to proceed cautiously so as not to move too soon or too late.
- Traders are now looking to Bank of Japan Governor Kazuo Ueda for some stimulus ahead of speeches from a number of prominent FOMC members later this Thursday.
- Meanwhile, U.S. economic data will include the weekly number of new jobless claims, the Philadelphia Federal Reserve's manufacturing industry index, and existing home sales data.
- However, the focus remains on Japan's national core consumer price index (CPI), which will be one of the factors the BOJ will scrutinize at its next meeting.
For the bears to take control, USD/JPY needs to fall below the 100-period SMA on the 4-hour chart.
From a technical perspective, the USD/JPY pair shows some resilience as it remains below the 100-period simple moving average (SMA) on the 4-hour chart. Additionally, the oscillator on the daily chart remains comfortably in positive territory, suggesting that the subsequent decline could still be seen as a buying opportunity near the 154.65-154.60 area. This should help limit the downside near the 154.00 mark (200 period SMA). The above support should act as a key key point and if it is broken, it could expose a weekly swing low around the 153.25 area.
On the contrary, the Asian trading peak around 155.40 appears to be an immediate hurdle, beyond which the USD/JPY pair could make another attempt to regain the 156.00 mark. Some follow-through buying could push spot prices towards a retest of last Friday's multi-month highs near the 156.75 area.
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 against major currencies due to the World Bank's massive 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 widened the gap between the yen and other currencies, causing the value of the yen to fall. 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.
