- The Japanese yen has struggled to capitalize on modest intraday gains against the US dollar.
- Uncertainty surrounding the Bank of Japan's interest rate hike in December and risk-on impulses are holding back the yen.
- A non-dovish bet on the Fed supports the USD and also provides support for USD/JPY.
The Japanese Yen (JPY) pared some of its modest intraday gains, along with the bullish US Dollar (USD) as the USD/JPY pair rebounded around 35-40 pips from the sub-152.00 levels hit during the Asian session. support. Thursday. The decline in the possibility that the Bank of Japan (BOJ) will raise interest rates again in December has been found to be an important factor holding back the yen's upside. In addition to this, the recent steady recovery in US Treasury yields and the prevalence of a risk-on environment appear to be further headwinds for the yen.
Investors now appear confident that the Federal Reserve will take a cautious approach to lowering interest rates, with hopes that President-elect Donald Trump's expansionary policies will boost inflation. This will continue to push US Treasury yields higher, which in turn will help the US dollar sustain recent gains at multi-month highs and provide some support to the USD/JPY pair. However, traders may choose to take a wait-and-see approach ahead of next week's major central bank event risks: the FOMC decision and the Bank of Japan meeting.
Japanese yen bulls continue to take a wait-and-see approach amid uncertainty about the Bank of Japan's interest rate hike
- Bloomberg reported on Wednesday that the Bank of Japan believes there is little cost to waiting to raise rates again, but officials remain open to raising rates next week, depending on data and market developments.
- Moreover, mixed signals from BOJ officials suggest the bank is in no hurry to tighten policy, with the Japanese yen falling to a two-week low against the US yen on Wednesday.
- Meanwhile, Japan's economy is expanding modestly, wages are rising steadily and inflation remains above the Bank of Japan's 2% target. This indicates that the conditions for another interest rate hike are now in place.
- But traders may hold back on aggressive bets on the Japanese yen ahead of next week's Bank of Japan decision, just hours after the Federal Reserve's expected rate cut.
- The U.S. Bureau of Labor Statistics (BLS) reported Wednesday that the composite consumer price index rose 0.3% in November, the largest increase since April, and the annual rate of increase accelerated to 2.7%.
- Meanwhile, core CPI, which excludes volatile food and energy prices, rose 0.3% during the reporting month to 3.3% in the 12 months to November, in line with market expectations.
- The Federal Reserve is still expected to cut interest rates for the third time in a row next week at its end-December meeting on the back of signs of a cooling labor market, according to CME Group's FedWatch tool.
- Meanwhile, the U.S. Consumer Price Index (CPI) report shows that progress in lowering inflation toward the Fed's 2% target has stalled, suggesting the Fed will be more cautious about rate cuts going forward. There is a possibility that you will be forced to take it.
- Markets are already betting that the Fed could hit the pause button as early as its January meeting amid growing uncertainty over President-elect Donald Trump's policies and impending tariff plans.
- This pushed the benchmark 10-year US Treasury yield to a two-week high on Thursday, providing a tailwind for the US dollar and continuing to provide some support to the USD/JPY pair.
- Thursday's U.S. economic report includes the release of the U.S. producer price index and the customary weekly new jobless claims numbers, which could provide some momentum later in the North American session.
USD/JPY looks poised for further gains while above 200-day SMA
From a technical perspective, the overnight breakout of the 200-day simple moving average (SMA) near the 152.00 mark was seen as another opening for bullish traders. Furthermore, the oscillator on the daily chart remains comfortably in positive territory, still far from the overbought zone, suggesting that the path of least resistance remains to the upside for the USD/JPY pair. Masu.
However, the subsequent rally stalled around the confluence of 152.70-152.80, which consists of the 200-period SMA on the 4-hour chart and the 50% retracement level of the recent pullback from multi-month highs. . The above area may continue to act as a hurdle for the time being, beyond which the USD/JPY pair will move above the 153.00 mark and test the next related hurdle around the 153.65 area, or 61.8% Fibonacci retracement level. There is a possibility of aiming.
Conversely, weakness below the 152.00 mark could find support near the 151.75 area, or 38.2% Fibo. level. Any further decline may continue to attract new buyers and may remain limited around the round value of 151.00. The latter should serve as an important key point, below which the USD/JPY pair could fall to the intermediate support at 150.50 and then finally to the psychological mark of 150.00.
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.
