The Japanese Yen (JPY) has recouped part of its significant losses against the US Dollar (USD) as speculation grows that the Bank of Japan (BoJ) may implement another interest rate hike in December. Additionally, a more cautious risk sentiment and ongoing geopolitical tensions have bolstered demand for the Yen as a safe haven. However, rising US Treasury bond yields, driven by expectations for a less dovish Federal Reserve (Fed), are likely to limit the Yen’s upside potential.
Investor sentiment has been shaped by US President-elect Donald Trump’s plans to impose tariffs on countries in the BRICS bloc (Brazil, Russia, India, China, and South Africa), potentially leading to inflationary pressures and diminishing the likelihood of the Fed cutting interest rates. This has spurred a rebound in US bond yields, encouraging demand for the US Dollar and helping the USD/JPY pair hold above the critical 150.00 level.
Amid these developments, investors are also focused on the US ISM Manufacturing PMI and other key data releases this week that could offer short-term trading opportunities.
Meanwhile, Trump’s tariff threats, especially a 100% tariff on BRICS nations if they replace the US Dollar in international trade, have added to growing concerns about a global trade conflict. These moves are seen as part of a broader expansionary policy that may push US inflation higher and prompt the Fed to reconsider its rate cuts.
On the other side, Japan’s inflation indicators are showing signs of strengthening. Tokyo’s consumer inflation figures suggest rising inflationary pressure, reinforcing the likelihood of another rate hike from the BoJ in December. BoJ Governor Kazuo Ueda has indicated that the next rate hike is imminent, with economic data supporting this view, although he awaits further developments from Japan’s fiscal 2025 Shunto.
Japan’s economic recovery also appears to be gaining traction, with a reported 8.1% rise in capital spending in the third quarter, driven by robust domestic demand.
Geopolitical events, including ongoing military actions in Syria and tensions over Ukrainian territory, add further uncertainty to market dynamics, but China’s mixed PMI data and hopes for additional fiscal stimulus offer some stability to markets.
Looking ahead, the focus shifts to US macroeconomic reports, including the highly anticipated Non-Farm Payrolls (NFP) data, which could provide critical insight into the Fed’s rate-cut strategy and affect USD/JPY movement.
From a technical perspective, USD/JPY faces resistance around the 151.00 mark, with a potential breakout triggering a rally towards the 151.65 level. On the downside, the 150.00 level remains crucial in protecting the immediate downside, with further declines possible if the 149.45 swing low is breached.
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