- The Japanese yen has rebounded from its lowest level in more than a week against the US dollar on Tuesday.
- Doubts about the Bank of Japan's ability to raise interest rates could hinder new bets by yen bulls.
- Expectations that the Fed will become less dovish could support the US dollar and support USD/JPY.
The Japanese yen (JPY) struggled to build a modest rebound from its one-week low against the US in Asian trading on Tuesday, as expectations that the Bank of Japan (BOJ) would raise interest rates in December waned. There is. That said, weakening risk tone, concerns that US President-elect Donald Trump's tariff plans could trigger a second wave of global trade wars, and geopolitical tensions are providing tailwinds for the safe-haven yen. are.
Separately, expectations that the Federal Reserve will cut interest rates later this month will limit any overnight recovery in U.S. bond yields, thereby providing further support to the low-yielding yen. It turns out. This, coupled with subdued United States dollar (USD) price action, is likely to suppress the USD/JPY pair. Additionally, traders may choose to stay on the sidelines ahead of Wednesday's release of U.S. consumer inflation data.
Japanese yen bulls seem reluctant amid uncertainty about the Bank of Japan's interest rate hike in December
- Bank of Japan Governor Kazuo Ueda recently said that the time for the next interest rate hike is approaching. This, along with data showing Japan's underlying inflation remains strong, raised expectations that the Bank of Japan would raise interest rates at its December 18-19 policy meeting.
- However, some media outlets have suggested that the Bank of Japan may postpone raising interest rates this month. Additionally, Toyoaki Nakamura, a dovish board member at the Bank of Japan, said the central bank needed to act cautiously in raising interest rates, which would increase uncertainty and hurt the Japanese yen.
- The US Nonfarm Payrolls (NFP) report released on Friday reaffirmed expectations for an interest rate cut in December by the Federal Reserve. However, the Fed could send a cautious message amid expectations that President-elect Donald Trump's policies could reignite inflationary pressures.
- The benchmark 10-year Treasury yield rebounded modestly on Monday after closing last Friday at its lowest level since Oct. 18. This supports the rise in the US dollar (USD) based on the post-NFP recovery, leading to a slight rise in the USD/JPY pair.
- Investors remain concerned about President Trump's impending trade tariffs and their impact on the global economic outlook. Additionally, turmoil in the Middle East intensified over the weekend after Syrian rebels seized power, forcing President Bashar al-Assad to flee to Russia.
- The main event this week will be Wednesday's release of the US consumer price index for November, which should provide clues about the outlook for US interest rates. This should impact the currency pair ahead of next week's FOMC/BOJ policy meeting.
USD/JPY traders seem to have no commitment. 151.00 holds the key for bulls
From a technical perspective, any subsequent rally will likely face stiff resistance and remain capped around the 151.75-152.00 confluence. This area consists of the 38.2% Fibonacci retracement level, the recent pullback from November's multi-month high, and the all-important 200-day simple moving average (SMA). Given that the oscillator on the daily chart is recovering from negative territory, a continued move above the 152.00 mark could pave the way for further upside towards the 152.70-152.75 area, or the 50% retracement level. It should open. This is followed by a round number of 153.00, above which the USD/JPY pair could gain momentum towards 61.8% Fibo. Level, around 153.70.
Conversely, weakness below the 151.00 mark appears to find good support near the 150.60 area, or 23.6% Fibonacci. Level resistance breakpoint. The next relevant support is anchored around the psychological mark of 150.00, below which the USD/JPY pair weakens to the 149.50-149.45 area on its way to the 149.00 mark, which is close to the monthly low near 148.65 hit last week. There is a possibility that it will happen. The latter coincides with the 100-day SMA, and a convincing break below this would be seen as another trigger for bearish traders, setting the stage for further declines in the near term.
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 QE, in which the Federal Reserve stops buying bonds from financial institutions and reinvests the principal of maturing bonds without buying new bonds. . It is usually positive for the value of the US dollar.
