During Thursday’s Asian trading session, the Japanese Yen (JPY) managed to gain some ground, effectively breaking a three-day streak where the USD/JPY pair had climbed to reach a two-week high just the day before. This recent boost for the Yen appears to be due to a slight dip in the US Dollar (USD), which itself stems from growing speculation that the Federal Reserve (Fed) might reduce interest rates in the coming week. Despite this, the Yen’s gains seem somewhat restrained, especially given the dwindling chances of a Bank of Japan (BoJ) rate hike in December.
Adding to the mix, an uptick in US Treasury bond yields along with a generally risk-friendly climate seems to be restraining the Yen’s traditional safe-haven appeal. Yet, it seems Yen bears are hesitant to make bold moves ahead of the BoJ’s last policy meeting of the year, slated for next week. Geopolitical considerations and ambiguity around the policies of US President-elect Donald Trump might lend some stability to the Yen. With fundamentals sending mixed signals, a cautious approach is advised before concluding that the USD/JPY pair might have peaked.
In recent reports, including one from Bloomberg on Wednesday, there’s an indication that the Bank of Japan (BoJ) sees minimal drawbacks in waiting to increase interest rates, though they’re still open to potentially hiking next week depending on economic data and market conditions. However, mixed messages from BoJ officials suggest they’re not rushing to tighten monetary policy, which has led the Japanese Yen to dip to a two-week low against the USD on Wednesday.
Meanwhile, Japan’s economy shows signs of steady growth, with rising wages and inflation figures hovering above the BoJ’s 2% target, suggesting a conducive environment for another rate hike. Traders might still hold off on making aggressive moves with the Yen just before both the BoJ’s and Fed’s announcements next week, especially as markets anticipate a Fed rate cut. The US Bureau of Labor Statistics reported a 0.3% rise in the Consumer Price Index (CPI) for November, the largest increase since April, with the annual rate reaching 2.7%. Core CPI also rose as expected, fueling speculation around the Fed’s next move.
The CME Group’s FedWatch Tool still points towards a third consecutive rate cut from the Fed at next week’s December meeting due to a weakening labor market. However, the unchanged progress towards the Fed’s 2% inflation target, as demonstrated by the recent CPI data, might prompt a more cautious Fed stance on future cuts. Markets speculate the Fed might pause rate cuts as soon as January amidst uncertainties over President-elect Trump’s policy decisions and proposed tariffs. Consequently, the yield on 10-year US government bonds climbed to a two-week high on Thursday, providing a lift to the US Dollar, which should help support the USD/JPY pair. Looking ahead, Thursday’s US economic releases, including the Producer Price Index and Initial Jobless Claims data, could influence the market in the North American session.
From a technical viewpoint, the recent breakthrough above the 200-day Simple Moving Average (SMA), around the 152.00 level, has energized USD/JPY bulls. Technical indicators on the daily chart remain positive and aren’t overbought yet, pointing towards upward momentum. However, the pair faced resistance at the 152.70-152.80 range, which includes the 200-period SMA on the 4-hour chart and a 50% retracement of the recent decline. A push beyond this barrier might propel the pair past 153.00, potentially targeting the next hurdle at around 153.65, aligning with the 61.8% Fibonacci retracement level.
Conversely, any dip below 152.00 could find support near 151.75 or the 38.2% Fibonacci level. A further drop might attract buyers around the 151.00 mark, acting as a crucial support point. Failing this, the USD/JPY could edge down first to 150.50 before testing the psychological 150.00 level.
