- The Japanese yen continues to fall due to fluctuations in expectations for the Bank of Japan's interest rate hike.
- au Jibun Bank Service PMI was revised downward to 50.9 from 51.4 in December.
- Amid the Fed's hawkish stance, the US dollar is near a two-year high, supporting USD/JPY.
The Japanese yen (JPY) attracted new sellers at the start of the new week, moving closer to multi-month lows against the US yen in December. The Bank of Japan's (BOJ) dovish outlook and pervasive risk-on mood have been found to be the main factors undermining the safe-haven yen. Additionally, a bullish US dollar (USD), supported by hawkish signals from the Federal Reserve and optimism about US President-elect Donald Trump's expansionary policy, is providing a tailwind for the USD/JPY pair. There is.
Meanwhile, data released early this Monday showed that business activity in Japan's service sector expanded for the second consecutive month in December. This, along with a pick-up in inflation in Japan's service sector, provides the basis for the Bank of Japan's interest rate hike in January. Separately, geopolitical risks and concerns about President Trump's tariff plans are preventing yen bears from making aggressive bets. Additionally, speculation that Japanese authorities may intervene to support the country's currency could also help limit further losses for the yen.
The Japanese yen remains under pressure due to doubts about the Bank of Japan's further interest rate hikes.
- The Bank of Japan last month gave few clues as to when borrowing costs might rise again, stressing the need to be more cautious amid domestic and global uncertainty.
- The December au Jibun Bank Services Purchasing Managers' Index (PMI) was revised downward from the preliminary figure of 51.4 to 50.9, but it still marked the second consecutive month of expansion.
- The survey also found that business confidence remains positive, with the new business sub-index rising for the sixth consecutive month and employment increasing for the 15th consecutive month.
- Bank of Japan Governor Kazuo Ueda said he expected wages and prices to rise at a balanced pace this year and said the timing of any adjustments to financial support would depend on economic, price and financial developments.
- The market expects the Bank of Japan to raise interest rates from 0.25% to 0.50% by the end of March. The next BOJ meeting is scheduled for January 23-24, followed by another meeting on March 18-19.
- The Institute for Supply Management (ISM) said Friday that the U.S. manufacturing PMI was 48. It reported an improvement from 4 to 49.3, showing signs of resilience and potential for growth.
- The Fed signaled in December that it would slow the pace of rate cuts in 2025, sending Treasury yields and the U.S. dollar higher in recent weeks.
- San Francisco Fed President Mary Daly said Saturday that despite significant progress in reducing price pressures over the past two years, inflation remains uncomfortably above the 2% target.
- Traders are now focusing on US economic trends, featuring the release of final service PMI and factor order data, for some stimulus and short-term trading opportunities later today.
- Investors will be faced with other important US macro data this week, including the ISM Services PMI, JOLTS job openings, the ADP report on private sector employment, and the Nonfarm Payrolls (NFP) report.
USD/JPY bulls need to wait for strength to sustain above the 158.00 mark
Any subsequent rally is likely to encounter resistance near 158.00, or the multi-month peak. A sustained move above this will be seen as a new trigger for bullish traders and will pave the way for further profits within the positive oscillator on the daily chart. Thereafter, the USD/JPY pair may aim to clear the intermediate hurdle of 158.45 and regain the 159.00 mark. This momentum could extend further towards the psychological mark of 160.00 on its way to the 160.50 area, which coincides with the top of a multi-month ascending channel.
On the contrary, the Asian session low, near the 157.00 mark, now appears to be guarding the horizontal zone at 156.65 and the immediate downside ahead of the 156.00 mark. Any further decline could be seen as a buying opportunity near 155.50 and help limit losses for the USD/JPY pair near the psychological mark 155.00. The latter should serve as a strong foundation for spot prices, and if this is decisively broken, short-term bias could shift in favor of bearish traders.
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 relative 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 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.
