The Japanese Yen (JPY) remains under pressure against the US Dollar (USD) during Tuesday’s Asian session, as market expectations continue to point toward the Bank of Japan (BoJ) maintaining its accommodative stance and leaving interest rates unchanged this week. This outlook, coupled with a recent surge in US Treasury bond yields, is weighing on the lower-yielding JPY. Additionally, a generally positive risk environment is diminishing demand for the Yen as a safe-haven asset. However, a modest pullback in the US Dollar caps further upside for the USD/JPY pair, with traders cautious ahead of key central bank decisions.
The BoJ’s decision, scheduled for Thursday, follows the US Federal Reserve’s meeting on Wednesday. Expectations of a hawkish tone from the Fed regarding an interest rate cut are also contributing to pressure on the Yen. With both central banks set to make crucial announcements, market participants are holding back from taking strong positions, awaiting clearer signals.
Yen Under Pressure as BoJ Expected to Keep Rates Steady
The Japanese Yen continues to face bearish sentiment, bolstered by expectations that the BoJ will keep interest rates unchanged at the conclusion of its two-day policy meeting on Thursday. This has pushed the USD/JPY pair to a three-week high, continuing its upward momentum seen on Monday.
Japan’s economy minister, Ryosei Akazawa, reaffirmed on Tuesday that the BoJ and the government would cooperate on appropriate monetary policy, with the central bank responsible for determining specific measures. Meanwhile, US Treasury yields have risen sharply, following stronger-than-expected economic data from the US. The 10-year US government bond yield reached its highest level since November 22, driven by rapid growth in parts of the US economy.
The S&P Global flash US Services PMI surged to 58.5 in December, its highest level in 38 months, while the Composite PMI rose to 56.6, marking a 33-month high. Although the US Manufacturing PMI fell to a three-month low of 48.3, the overall data has reinforced expectations that the Fed may slow the pace of policy easing, supporting US bond yields and the US Dollar.
Markets have fully priced in a 25-basis-point rate cut by the Fed on Wednesday, which has kept the USD bulls in check and limited the upside for the USD/JPY pair. Traders are also focused on US Retail Sales data, which, along with bond yields, will influence demand for the US Dollar and create short-term opportunities for the currency pair.
Technical Outlook: USD/JPY Eyes 155.00 as Key Resistance
Technically, the USD/JPY pair remains bullish after breaking through the 61.8% Fibonacci retracement level of the November-December decline. Holding above the 154.00 level is seen as a key trigger for further upside. Oscillators on the daily chart are showing positive momentum, supporting the likelihood of continued buying pressure. A move above the 154.45-154.50 area could pave the way for a push toward the 155.00 psychological level, followed by further resistance around the mid-155.00s and the 156.00 level.
On the downside, the 61.8% Fibonacci resistance at 153.65 provides initial support, followed by the 153.35 region. A break below 153.00 could open the door for a decline toward the 200-day Simple Moving Average (SMA) at around 152.10-152.00. A decisive break below this level could shift the bias in favor of bearish traders, potentially sending the pair toward the 151.00 round figure and the 150.00 mark.
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