The Japanese Yen (JPY) continues its decline against the US Dollar (USD) for the fifth consecutive day, falling to its lowest point in over two weeks during Friday’s Asian session. The persistent market belief that the Bank of Japan (BoJ) will hold off on raising interest rates at its upcoming policy meeting next week has fueled this downward trend. This sentiment is compounded by expectations of a less dovish Federal Reserve (Fed), which has contributed to the recent rise in US Treasury bond yields, further pressuring the Yen as capital flows move away from the lower-yielding currency.
However, a cautious market sentiment, coupled with ongoing geopolitical tensions and concerns about US President-elect Donald Trump’s tariff proposals, continues to lend support to the JPY as a safe-haven asset. Meanwhile, the US Dollar has consolidated its weekly gains, reaching a new monthly peak, but struggles to help the USD/JPY pair sustain momentum beyond the 153.00 mark. Traders remain hesitant to take aggressive positions ahead of the significant central bank meetings next week, notably the highly anticipated Federal Open Market Committee (FOMC) and BoJ policy announcements.
BoJ’s Rate Hike Prospects Under Scrutiny Amid Economic Data
The Bank of Japan’s quarterly Tankan survey, released on Friday, indicated a rise in business confidence among large manufacturers, reaching +14 for the September-December period — the highest since March 2022. Additionally, companies are forecasting a 2.4% inflation increase over the next year. These signs of economic expansion, along with rising wages at their fastest pace since November 1992, suggest that the BoJ might have reasons to raise interest rates.
However, recent media reports suggest that the BoJ is leaning towards maintaining its accommodative stance in December. Reuters, citing anonymous sources, indicated that BoJ officials are more inclined to keep rates steady, citing concerns over international risks and uncertainty surrounding next year’s wage trends. A Bloomberg report also highlighted that while BoJ officials remain open to a rate hike, they are not in a rush, preferring to assess economic and market conditions further.
Mixed messages from BoJ policymakers add to the uncertainty, with Governor Kazuo Ueda suggesting that a rate hike is imminent, while board member Toyoaki Nakamura called for caution. This indecision continues to weigh on the Yen and has pushed the USD/JPY pair to its highest level in over two weeks.
US Economic Data Bolsters Fed’s Hawkish Stance
On Thursday, the US Bureau of Labor Statistics reported a 0.4% rise in the Producer Price Index (PPI) for November, up from the previous month’s 0.3% gain. The annual PPI inflation rate accelerated to 3% from 2.6% in October. Additionally, the core PPI rose 0.2% in November, marking a 3.4% year-over-year increase, surpassing expectations.
These inflation figures, combined with Wednesday’s consumer inflation data, suggest that progress towards the Federal Reserve’s 2% inflation target has stalled. This could prompt the Fed to adopt a more cautious approach, signaling fewer rate cuts in the near future. This shift is likely to support further gains in US Treasury bond yields, which, in turn, is placing additional downward pressure on the JPY.
Market Focus Shifts to Central Bank Meetings
With crucial central bank decisions on the horizon, market participants are turning their attention to next week’s FOMC and BoJ meetings. As traders wait for clarity on these key policy moves, many are choosing to remain on the sidelines, hesitant to place significant bets in either direction.
Technical Outlook for USD/JPY
From a technical perspective, the USD/JPY pair is facing resistance around the 152.70-152.80 range, where the 200-period Simple Moving Average (SMA) and the 50% retracement level converge. A break above this level could push the pair towards the 153.00 mark, potentially extending to the 153.65 region or the 61.8% Fibonacci retracement. On the downside, support is seen at 151.75, with further weakness potentially leading to a drop below 151.00, targeting the psychological 150.00 level.
In summary, the Japanese Yen faces multiple headwinds, from BoJ policy uncertainty to a rising US Dollar, with market attention firmly fixed on next week’s central bank meetings for clearer direction.
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