The Japanese Yen (JPY) strengthened further on Wednesday, pushing the USD/JPY pair below the 152.00 mark to a three-week low during early European trading. Persistent demand for the safe-haven JPY, fueled by geopolitical tensions and concerns over US trade policies, coupled with a weaker US Dollar (USD), drove the movement.
Heightened risks from the ongoing Russia-Ukraine conflict and fears that US President-elect Donald Trump’s proposed tariffs may spark global trade wars have bolstered demand for the Yen. Meanwhile, market confidence in Scott Bessent, the nominee for US Treasury Secretary, to restrain budget deficits has driven US Treasury yields lower, exerting additional pressure on the USD.
Safe-Haven Demand Drives Yen Strength
Concerns surrounding Trump’s tariff plans and their potential economic repercussions continue to steer haven flows toward the JPY. The retreat in US Treasury yields, with the 10-year yield dropping to a two-week low, has also reinforced the Yen’s appeal.
Recent Japanese inflation data has further supported JPY bulls. Tuesday’s figures highlighted rising service-sector inflation, fueling speculation that the Bank of Japan (BoJ) could implement another rate hike during its December policy meeting. Japanese Prime Minister Shigeru Ishiba added momentum by pledging to push for significant wage increases in upcoming labor negotiations.
US Dollar Faces Continued Pressure
The USD remains subdued, hovering near its weekly low amid dovish market expectations for the Federal Reserve’s (Fed) December meeting. The minutes from the November Federal Open Market Committee (FOMC) meeting revealed confidence in easing inflation, alongside the potential for further rate cuts, albeit at a cautious pace. Markets are pricing in a 63% probability of a 25-basis-point rate cut in December, according to the CME FedWatch Tool.
Geopolitical developments added complexity to USD dynamics. On Tuesday, the Hezbollah militant group launched drones toward Israel, prompting Israeli airstrikes on Beirut. However, US President Joe Biden announced a ceasefire agreement between Lebanon and Israel, effective early Wednesday, offering some respite to market tensions.
Market Focus Shifts to Key Data Releases
Investors are eyeing the upcoming first revision of US Q3 GDP and the US Personal Consumption Expenditure (PCE) Price Index for October for directional cues. Later in the week, Japan’s Tokyo Core CPI data is set to provide further insights into the country’s inflation trajectory, potentially influencing BoJ policy expectations.
Technical Analysis: Bearish Momentum Strengthens for USD/JPY
The USD/JPY pair’s overnight close below the 100-period Simple Moving Average (SMA) on the 4-hour chart signals growing bearish sentiment. Oscillators on the daily chart are also gaining negative traction, increasing the likelihood of further downside.
Key support is seen at the 200-day SMA near the 152.00 level. A decisive break below this point could expose the 151.30-151.25 zone, marking the monthly swing low.
Conversely, immediate resistance lies at the 153.00 psychological level, with further hurdles at 153.25-153.30. Sustained strength above these levels could spark a recovery, targeting the 154.00 mark and potentially extending toward 155.00 and beyond.
Outlook
As geopolitical tensions, tariff fears, and Fed expectations dominate sentiment, the Yen appears poised to retain its near-term strength. Meanwhile, the USD/JPY pair’s trajectory will hinge on incoming US and Japanese economic data, with volatility expected in the coming sessions.
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