The Japanese Yen (JPY) slid to a three-week low against the US Dollar (USD) during the Asian session on Monday, as market sentiment grew that the Bank of Japan (BoJ) will not raise interest rates at its upcoming meeting. Additionally, rising US Treasury yields, driven by expectations of a less dovish Federal Reserve (Fed), further weighed on the Yen. Even the release of better-than-expected data, including Japan’s Core Machinery Orders and flash Manufacturing PMI, failed to lift the currency, highlighting the ongoing bearish momentum for the JPY.
Despite this, JPY bears are likely to adopt a cautious stance, awaiting the highly anticipated BoJ decision on Thursday. In addition, the US Federal Open Market Committee (FOMC) meeting on Wednesday will be pivotal, with investors watching for any signals from the Fed that could impact the USD/JPY pair. Geopolitical risks, including the ongoing Russia-Ukraine conflict and tensions in the Middle East, as well as concerns over US President-elect Donald Trump’s tariff plans, may continue to support the Yen’s safe-haven appeal in the short term.
JPY Faces Pressure Amid Dovish BoJ Expectations
Government data released on Monday showed Japan’s core machinery orders grew by 2.1% in October, with a robust 5.6% year-on-year increase. The au Jibun Bank Japan Manufacturing PMI improved to 49.5 in December, although it remained in contraction for the seventh consecutive month. The services PMI rose to 51.4, while the composite PMI increased to 50.8 from 50.1 in November.
Despite the positive data, market sentiment remains skeptical about the BoJ tightening its policy further. While business confidence among Japan’s large manufacturers improved in the BoJ’s Tankan survey, the broader market continues to doubt the BoJ’s commitment to raising interest rates. This uncertainty continues to weigh on the Yen.
In the US, the 10-year Treasury yield rose to a three-week high, fueled by expectations that the Federal Reserve may slow the pace of rate cuts. The CME Group’s FedWatch Tool indicates a 93% chance of a 25 basis point rate cut at the Fed’s Wednesday meeting. However, concerns that inflation progress is stalling have led to speculation of slower rate reductions next year.
Technical Outlook for USD/JPY: Bulls Remain in Control
From a technical perspective, USD/JPY remains bullish, with a sustained move above the 61.8% Fibonacci retracement level of the November-December decline seen as a key trigger for further upward momentum. Oscillators on the daily chart are gaining positive traction, suggesting that the path of least resistance is to the upside. The next key resistance level is around 154.55, followed by the psychological 155.00 level.
On the downside, the immediate support level for USD/JPY is around 153.35-153.30, with further support at 153.00. A break below this level could lead to a test of the 200-day Simple Moving Average (SMA) near 152.10-152.00. A decisive break below this region could shift the bias toward bearish traders, pushing the pair towards the 151.00 round figure and the 150.00 psychological level.
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