Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Wednesday, I “don’t have a preset idea in mind on the pace of future rate hikes.”
Further comments
Don’t have a preset idea in mind on the pace of future rate hikes.
It is not as if we will be raising rates at each policy meeting.
Wage is key to gauging Japan’s trend inflation.
Must be vigilant to how price moves for goods people buy frequently affect inflation expectations.
Will debate policy decision at each meeting looking at economic, price developments.
Market reaction
At press time, USD/JPY holds minor gains near 149.80 following these comments.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Japanese Prime Minister (PM) Shigeru Ishiba said on Tuesday that “Japan is not pursuing so-called currency devaluation policy.”
Ishiba further noted that they “have had no phone call from US President Trump regarding forex policy.”
Market reaction
The Japanese Yen (JPY) is recovering some ground against the US Dollar (USD) following these comments. At the press time, USD/JPY is down 0.25% on the day at 149.11.
The Japanese Yen struggles to capitalize on its Asian session gains against a stronger USD.
Firming expectations for more BoJ rate hikes this year should help limit losses for the JPY.
Traders now look forward to the release of the crucial US PCE data for a fresh impetus.
The Japanese Yen (JPY) surrenders its intraday gains against the broadly stronger US Dollar (USD) after Prime Minister Shigeru Ishiba’s government reduced the FY25/26 budget plan to ¥115.2 trillion. Apart from this, the broadly stronger US Dollar (USD) assists the USD/JPY pair in reversing the Asian session slide to the 149.00 neighborhood. Any meaningful JPY depreciation, however, seems elusive in the wake of hawkish Bank of Japan (BoJ) expectations.
Investors seem convinced that the BoJ will hike interest rates further this year. The bets were reaffirmed by BoJ Deputy Governor Shinichi Uchida’s remarks, saying that the underlying inflation rate is gradually rising toward the 2% target. This offsets the softer Tokyo Consumer Price Index (CPI) print, which, along with the risk-off mood, should limit losses for the safe-haven JPY. The USD bulls might also opt to wait for the US Personal Consumption Expenditure (PCE) Price Index.
Japanese Yen bulls have the upper hand amid rising bets for more BoJ rate hikes this year
Japanese Prime Minister Shigeru Ishiba’s government announced that it reduced its FY25/26 Budget plan to ¥115.2 trillion. The government also said they will cut the new bond issuance to JPY28.6 trillion.
Bank of Japan Deputy Governor Shinichi Uchida said this Friday that Japan’s inflation rate is gradually rising towards the central bank’s 2% target as the economy sustains a moderate recovery path.
The Statistics Bureau of Japan reported that the headline Consumer Price Index (CPI) in Tokyo – Japan’s capital city – decelerated from 3.4% in the previous month to the 2.9% YoY rate in February.
Meanwhile, core CPI – which excludes volatile fresh food prices – eased more than expected, from an 11-month high of 2.5% touched in January to the 2.2% YoY rate during the reported month.
Furthermore, a core gauge that excludes both fresh food and energy prices, and is watched as a gauge of underlying inflation by the BoJ, came in at 1.9%, matching the previous month’s reading.
Separately, Japan’s Industrial Production fell by 1.1% MoM in January. This follows a 0.2% decrease in the previous month and marks the third consecutive month of decline in industrial output.
Investors, however, seem convinced that the BoJ will hike interest rates further, which, along with the risk-off mood, boosts the safe-haven Japanese Yen during the Asian session on Friday.
The US Dollar stands firm near the weekly top in the wake of Thursday’s data, showing that inflationary pressures continue to rise and backing the case for the Federal Reserve to hold steady.
The second reading of the US Gross Domestic Product showed that the economy expanded by a 2.3% annualized pace during the final quarter of 2024, matching the original estimate.
Additional details of the report published by the US Bureau of Economic Analysis revealed that the GDP Price Index rose 2.4% compared to the initial estimate of 2.2%.
This comes on top of worries that US President Donald Trump’s policies would reignite inflation and put additional pressure on the Federal Reserve to stick to its hawkish stance.
Kansas City Fed President Jeff Schmid said that recent surveys indicate a rise in consumer inflation expectations and that the central bank must stay focused on fully containing price pressures.
Cleveland Fed President Beth Hammack noted on Thursday that interest rates are likely on hold for the time being as inflation data starts to pose a growing problem for central policymakers.
Philadelphia Fed President Patrick Harker noted that progress toward the 2% inflation target has slowed and that the policy rate remains restrictive to continue putting downward pressure on inflation.
Investors now look forward to the release of the US Personal Consumption Expenditure (PCE) Price Index for cues about the Fed’s rate-cut path, which will drive the buck and the USD/JPY pair.
USD/JPY needs to move beyond weekly high to support prospects for further gains
From a technical perspective, spot prices remain confined in a familiar range held since the beginning of this week. Against the backdrop of the recent decline from the vicinity of the 159.00 mark, or the year-to-date high touched in January, the range-bound price action might still be categorized as a bearish consolidation phase. The negative outlook is reinforced by the fact that oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside and supports prospects for deeper losses.
In the meanwhile, the 149.00 round figure now seems to protect the immediate downside ahead of the 148.60-148.55 region, or the multi-month low touched on Tuesday. Some follow-through selling will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to the 148.00 mark en route to the next relevant support near the 147.35-147.30 area and the 147.00 round figure.
On the flip side, the 148.80 region, followed by the 150.00 psychological mark and the weekly high, around the 150.30 area, might continue to act as an immediate hurdle. A sustained strength beyond the latter, however, could trigger a short-covering rally and lift the USD/JPY pair further towards the 150.90-151.00 horizontal support breakpoint, now turned strong barrier. The momentum could extend further towards the 151.45 region en route to the 152.00 mark, though it is more likely to remain capped near the 152.40 zone. The latter represents the very important 200-day Simple Moving Average (SMA) and should act as a key pivotal point.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
USD/JPY rebounds 0.35% from 151.64 low, driven by bond yield movements.
Technical analysis hints at bullish shift; resistance near 200-day SMA at 152.76.
Downside risks if SMA not surpassed; supports at 152.00 and 150.93 in focus.
The USD/JPY climbed during the North American session. It trades at 152.52 and posts gains of over 0.35% after hitting a daily low of 151.64. The rise of the US 10-year T-note bond yield spurred the rise of the pair, which is positively correlated to the yield of the 10-year.
USD/JPY Price Forecast: Technical outlook
The USD/JPY remains biased downward, even though buyers could challenge the 200-day Simple Moving Average (SMA) at 152.76. The momentum shifted slightly bullish even though the relative strength index (RSI) remains bearish, and the slope aims upwards.
If buyers regain the 200-day SMA, the following key resistance would be the 153.00 mark before testing the Senkou Span B base at 153.76.
On the other hand, if USD/JPY stays below the 200-day SMA, the first support would be the 152.00 figure. Further losses lie below the February 7 daily low of 150.93, followed by the December 3 swing low of 148.64.
USD/JPY Price Chart – Daily
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Swiss Franc.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
-0.53%
-0.60%
0.30%
-0.16%
-0.28%
-0.23%
0.16%
EUR
0.53%
-0.08%
0.85%
0.39%
0.25%
0.30%
0.70%
GBP
0.60%
0.08%
0.93%
0.46%
0.31%
0.36%
0.76%
JPY
-0.30%
-0.85%
-0.93%
-0.45%
-0.59%
-0.53%
-0.14%
CAD
0.16%
-0.39%
-0.46%
0.45%
-0.13%
-0.08%
0.31%
AUD
0.28%
-0.25%
-0.31%
0.59%
0.13%
0.05%
0.44%
NZD
0.23%
-0.30%
-0.36%
0.53%
0.08%
-0.05%
0.39%
CHF
-0.16%
-0.70%
-0.76%
0.14%
-0.31%
-0.44%
-0.39%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Japan’s Economy Minister Ryosei Akazawa said on Tuesday that he ”will closely monitor the impact of the rate hike on the economy.”
Separately, the Bank of Japan (BoJ) announced that it would provide JPY200 billion through the outright purchase of commercial paper.
The Japanese central bank added that it would supply the US Dollar (USD) funds against pooled collateral.
Market reaction
USD/JPY is off the high but stays firm near 155.30 following these headlines, still up 0.50% on the day.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
The Bank of Japan is set to hike interest rates to 0.50% on Friday.
All eyes will remain on the language in the policy statement and Governor Ueda’s press conference.
The Japanese Yen could witness intense volatility on the BoJ policy announcements.
The Bank of Japan (BoJ) is widely expected to raise the short-term interest rate from 0.25% to a 17-year high of 0.50% in January, following the conclusion of its two-day monetary policy review on Friday.
The Japanese Yen (JPY) is set to rock on the BoJ policy announcements as investors seek to find fresh clues on the central bank’s next policy move.
What to expect from the BoJ interest rate decision?
The BoJ will likely begin 2025 with some action as it remains on track to revive its rate-hiking cycle after pausing for three consecutive meetings. In July 2024, the Japanese central bank unexpectedly raised rates by 15 basis points (bps) from 0.1% to 0.25%.
Markets speculated that a slew of hotter-than-expected inflation readings, the ongoing depreciation of the JPY and a fiscal budget strengthened the case for a BoJ rate hike at the January meeting.
Tokyo annual Consumer Price Index (CPI) rose 3% in November, up from 2.6% in October. Core inflation, which excludes food and energy costs, increased by 2.4% in the same period after reporting a 2.2% growth in October. Tokyo’s inflation numbers are widely considered a leading indicator of nationwide trends.
Meanwhile, Japan’s annual Producer Price Index (PPI) remained at 3.8% in December, driven primarily by high food prices, particularly a 31.8% increase in agricultural goods costs. Separately, the Japanese Cabinet approved a historic budget of $732 billion for the fiscal year beginning in April while restricting new bond issuance to its lowest level in 17 years, per Reuters.
The recent hawkish commentary from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino also pointed to a likely rate hike this week. Ueda said on January 16 that the board members “will debate at next week’s meeting whether to hike rates.” In his speech on January 14, Himino noted: “Japan’s inflation expectations have gradually heightened, now around 1.5%. Japan’s economy is roughly moving in line with our scenario projecting underlying inflation, inflation expectations to both move around 2%.”
With a rate hike almost a given, the language of the policy statement and Governor Ueda’s post-policy meeting press conference, due at 06:30 GMT, will help determine the path of the Bank’s next policy move.
The BoJ is also set to publish its quarterly Outlook Report and is expected to raise its inflation projections amid the gradual depreciation of the Japanese Yen and a recent surge in the cost of rice, Bloomberg reported, citing people familiar with the matter.
Analysts at BBH said: “Two-day Bank of Japan meeting ends Friday with an expected 25 bp hike to 0.5%. Markets have firmed up the odds of a hike over the past week to around 85% after BOJ officials expressed more confidence on wage growth gathering momentum.”
“In our view, the bar for a hawkish surprise is high because the BoJ will want to avoid unsettling the markets as it did back in July. As such, the Yen is likely to remain under downside pressure as the markets continue to price in the policy rate to peak around 1% over the next two years, the analysts added. “
How could the Bank of Japan’s interest rate decision affect USD/JPY?
Reuters reported last week, citing sources familiar with the central bank’s thinking, the BoJ is expected to maintain its hawkish stance while raising rates. The hawkish hike could be influenced by global financial market developments, such as United States (US) President Donald Trump’s return to the White House.
If the BoJ struggles to provide consistent guidance on the next policy move, reiterating that it will remain data-dependent and make a decision on a meeting-by-meeting basis, the Japanese Yen is likely to resume its downslide against the US Dollar (USD).
USD/JPY could fall hard if the BoJ hints at a March rate hike while expressing increased concerns over inflation.
Any knee-jerk reaction to the BoJ policy announcements could be temporary heading into Governor Ueda’s presser. Investors will continue to pay close attention to US President Donald Trump’s tariff talks, which trigger a big market reaction.
From a technical perspective, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes: “USD/JPY remains confined between the 21-day Simple Moving Average (SMA) and the 50-day variant in the run-up to the BoJ showdown. However, the 14-day Relative Strength Index (RSI) sits just above 50, suggesting that the pair could break the consolidative phase to the upside.”
“A hawkish BoJ hike could revive the USD/JPY correction from six-month highs of 158.88, smashing the pair toward the 200-day SMA at 152.85. The next support is seen at the 100-day SMA of 151.59. Further declines could challenge the 151.00 round level. Alternatively, buyers must yield a sustained break above the 21-day SMA at 157.13 to resume the uptrend toward the multi-month highs of 158.88. Buyers will then target the 160.00 psychological level,” Dhwani adds.
Economic Indicator
BoJ Monetary Policy Statement
At the end of each of its eight policy meetings, the Policy Board of the Bank of Japan (BoJ) releases an official monetary policy statement explaining its policy decision. By communicating the committee’s decision as well as its view on the economic outlook and the fall of the committee’s votes regarding whether interest rates or other policy tools should be adjusted, the statement gives clues as to future changes in monetary policy. The statement may influence the volatility of the Japanese Yen (JPY) and determine a short-term positive or negative trend. A hawkish view is considered bullish for JPY, whereas a dovish view is considered bearish.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
USD/JPY stable despite volatility after Trump announces possible 25% tariffs on neighboring countries.
US Dollar Index (DXY) gains 0.29%, reaching 108.30, amid positive market sentiment.
Focus on upcoming Bank of Japan meeting; potential for 25 basis point rate hike expected.
The USD/JPY was virtually unchanged during the North American session on Tuesday, as traders assessed US President Donald Trump’s threats to impose 25% tariffs on Canada and Mexico as soon as February 1. The Greenback recovered as the major hit a daily high of 156.20. However, fears faded as the pair traded near 155.54, virtually unchanged.
USD/JPY consolidates near 155.50 on President Trump’s proposed tariffs on Canada and Mexico
Market sentiment remains upbeat, and the US Dollar climbs, as depicted by the US Dollar Index (DXY), which tracks the basket of six currencies against the buck, rising 0.29% to 108.30.
Meanwhile, traders in the FX markets would continue to be attentive to Trump’s rhetoric, which sent ripples late Monday in the US as he signed a tranche of executive orders, including illegal immigration and naming cartels as global terrorist organizations.
In addition, USD/JPY traders are focused on the Bank of Japan’s (BoJ) next monetary policy meeting. Interest rate probabilities suggest the BoJ would likely raise rates by 25 basis points to 0.50% for the first time since July last year.
This week, the US economic schedule remains absent until Thursday, when the Initial Jobless Claims data will be released, followed by Friday’s S&P Flash PMIs. In Japan, the docket will feature Trade Balance data and foreign Investment figures ahead of the BoJ meeting.
USD/JPY Price Forecast: Technical outlook
The USD/JPY uptrend remains intact, but recently, sellers stepped in and dragged spot prices from around 158.80 to the current level. Despite this, bears failed to clear a support trendline drawn from September 2024 lows near 154.50. Nevertheless, if USD/JPY holds below 156.00, further downside is seen once 155.00 is cleared. The next support would be the 154.50, followed by the 154.00 mark.
On the other hand, if USD/JPY rises past the Senkou-span A at 156.41, a test of 157.00 is on the cards. If surpassed, a jump toward the January 15 high of 158.03 is likely.
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Canadian Dollar.
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF
USD
0.25%
0.30%
-0.06%
0.56%
0.33%
0.45%
0.20%
EUR
-0.25%
0.06%
-0.24%
0.30%
0.08%
0.21%
-0.07%
GBP
-0.30%
-0.06%
-0.34%
0.24%
0.01%
0.14%
-0.12%
JPY
0.06%
0.24%
0.34%
0.61%
0.37%
0.48%
0.23%
CAD
-0.56%
-0.30%
-0.24%
-0.61%
-0.23%
-0.10%
-0.37%
AUD
-0.33%
-0.08%
-0.01%
-0.37%
0.23%
0.12%
-0.14%
NZD
-0.45%
-0.21%
-0.14%
-0.48%
0.10%
-0.12%
-0.27%
CHF
-0.20%
0.07%
0.12%
-0.23%
0.37%
0.14%
0.27%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The USD has been marginally weaker recently due to lower than expected
US inflation figures last week that sent Treasury yields lower and made the market
to price in higher chances of a second rate cut by the end of the year.
Yesterday, the greenback weakened across the board following a WSJ report saying that Trump would lay out the trade vision but won’t impose
tariffs yet. Tonight though, he spoke to the media and said that he intends to impose 25% tariffs on Canada and Mexico next week. Following
the news, the US Dollar erased almost all the losses from the prior day.
On the JPY side, nothing
has changed as the market still expects a 25 bps rate hike at this week’s
meeting following last week’s BoJ Ueda’s comments. The yen has been stronger
against the other major currencies though due to the risk off caused by the
tariffs comments.
USDJPY
Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can
see that USDJPY broke out of the recent consolidation and it’s now approaching
the major trendline. From a risk management perspective, the buyers will have a
better risk to reward setup around the major trendline to position for a rally into the
160.00 handle. The sellers, on the other hand, will look for a break below the
trendline to extend the drop into the 149.00 handle next.
USDJPY Technical
Analysis – 4 hour Timeframe
USDJPY 4 hour
On the 4 hour chart, we can
see that we have now a downward trendline defining the current bearish momentum
on this timeframe. The sellers will likely lean on the trendline to position
for a drop into the major trendline. The buyers, on the other hand, will want
to see the price breaking higher to start targeting the 160.00 handle.
USDJPY Technical
Analysis – 1 hour Timeframe
USDJPY 1 hour
On the 1 hour chart, there’s
not much else we can add here as the sellers will look for a rejection from the
trendline, while the buyers will look for a break above it. The red lines
define the average daily range for today.
Upcoming
Catalysts
This week is pretty empty on the data front with just a couple
of key releases scheduled for the latter part of the week. On Thursday, we get
the latest US Jobless Claims figures, while on Friday we conclude the week with the
Japanese CPI, the BoJ Rate Decision and the Flash PMIs.
The Japanese Yen gains positive traction for the second straight day amid BoJ rate hike bets.
The narrowing of the US-Japan yield differential provides an additional boost to the JPY.
The risk-on mood caps the JPY and helps USD/JPY to rebound from a multi-week low.
A modest USD uptick contributes to the pair’s bounce, though the upside seems limited.
The Japanese Yen (JPY) trims a part of strong intraday gains against its American counterpart, lifting the USD/JPY pair back above the 156.00 mark heading into the European session on Thursday. Expectations that the Federal Reserve (Fed) could cut interest rates twice this year, along with easing fears about US President-elect Donald Trump’s disruptive trade tariffs, remain supportive of the risk-on mood. This turns out to be a key factor that undermines the safe-haven JPY and assists the currency pair in finding decent support ahead of the 155.00 psychological mark.
Apart from this, the emergence of some US Dollar (USD) dip-buying, bolstered by the growing acceptance that the Fed will pause its rate-cutting cycle later this month, offers support to the USD/JPY pair. That said, any meaningful JPY depreciation seems elusive amid bets for a Bank of Japan (BoJ) rate hike next week. The expectations push the yields on Japanese Government Bonds (JGBs) to multi-year highs. In contrast, the US Treasury bond yields retreated after benign US inflation data, narrowing the US-Japan yield-differential, which could further lend support to the JPY.
Japanese Yen trims a part of strong intraday gains amid the risk-on mood
Bank of Japan Governor Kazuo Ueda reiterated that the central bank will debate whether to hike rates next week and will raise policy rate this year if economic, price conditions continue to improve.
Ueda’s remarks echoed Deputy Governor Ryozo Himino’s comments earlier this and lift bets for an interest rate hike at the end of the January 23-24 meeting, providing a strong boost to the Japanese Yen.
The yield on the benchmark 10-year Japanese government bond advanced to its highest level since 2011 amid the prospects for further monetary policy tightening by the BoJ.
In contrast, the US Treasury bond yields fell on Wednesday following the release of the US Consumer Price Index (CPI), which eased fears that inflation was accelerating.
The US Bureau of Labor Statistics (BLS) reported that the headline CPI rose 0.4% in December and the yearly rate accelerated to 2.9% from 2.7% in the previous month.
The core gauge, which excludes volatile food and energy prices, rose 3.2% on a yearly basis as compared to the 3.3% increase recorded in November and expectations.
The US Dollar dived to a one-week low following the release of the latest US consumer inflation figures and contributed to the USD/JPY pair’s decline on Wednesday.
Richmond Fed President Tom Barkin said that fresh inflation data show progress on lowering inflation to the central bank’s 2% goal, but added that rates should remain restrictive.
Against the backdrop of easing fears about US President-elect Donald Trump’s disruptive trade tariffs, softer US inflation data remains supportive of the upbeat market mood.
Traders look to the US macro data for a fresh impetus later during the North American session, though the focus will remain glued to the upcoming BoJ policy meeting.
USD/JPY recovery is likely to face stiff resistance near the 156.35-156.40 area
Any further slide is likely to find some support near the 155.00 psychological mark, below which the USD/JPY pair could slide to the 154.55-154.50 region. The latter represents the lower boundary of a four-month-old upward-sloping channel and should act as a key pivotal point. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent retracement slide from a multi-month peak touched last Friday. Spot prices might then weaken further below the 154.00 mark and test the next relevant support near the 153.40-153.35 horizontal zone.
On the flip side, any attempted recovery might now confront resistance near the 156.00 mark ahead of the 156.35-156.45 region and the 156.75 area. Some follow-through buying, leading to a subsequent strength beyond the 157.00 mark, might shift the bias back in favor of bullish traders and lift the USD/JPY pair to the 155.55-155.60 intermediate hurdle en route to the 158.00 round figure. The momentum could extend further towards challenging the multi-month peak, around the 158.85-158.90 region.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Scope for US Dollar (USD) to test 158.50; a breach above this level is not ruled out, but any further advance is highly unlikely to reach 159.00. In the longer run, USD is expected to trade with an upward bias against the Japanese Yen (JPY); any advance is expected to face significant resistance at 159.00, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.
Any advance is expected to face significant resistance at 159.00
24-HOUR VIEW: “When USD was trading at 158.15 yesterday, we indicated that it ‘could rise, but it does not appear to have enough momentum to reach 159.00 (there is another resistance level at 158.50).’ USD subsequently rose less than expected, reaching a high of 158.42. It then closed at 158.02, higher by 0.27%. While there has been no significant increase in upward momentum, there is scope for USD to test 158.50. A break of this level this not ruled, but any further advance is highly unlikely to reach the major resistance at 159.00. On the downside, a breach of 157.30 (minor support is at 157.70) would mean that USD is more likely to trade in a range instead of testing 158.50.”
1-3 WEEKS VIEW: “There is not much to add to our update from yesterday (07 Jan, spot at 158.15). As highlighted, ‘upward momentum is building, and we expect USD to trade with an upward bias.’ We also highlighted that, ‘any advance is expected to face significant resistance at 159.00.’ We continue to hold the same view provided that 156.80 (no change in ‘strong support level) is not breached.”
