The Japanese Yen (JPY) saw a slight recovery after reaching a five-month low against the US Dollar (USD) during the Asian session on Friday, but the rally lacked significant follow-through. Key factors, including higher-than-expected Japanese Consumer Price Index (CPI) data, a risk-off market mood, and a modest pullback in US Treasury yields, offered some support to the safe-haven Yen. However, the ongoing uncertainty about when the Bank of Japan (BoJ) might raise interest rates continues to cap the JPY’s potential gains.
The Federal Reserve’s recent signal to slow the pace of rate cuts in 2025 provided additional momentum for US bond yields, further weighing on the JPY. This hawkish stance also contributed to a stronger US Dollar, which reached a two-year high, limiting any downside for the USD/JPY pair. Traders are now awaiting the release of the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, which could offer new direction for the pair heading into the weekend.
BoJ’s Rate Hike Uncertainty Weighs on JPY
The Bank of Japan (BoJ) kept its short-term rate target unchanged between 0.15% and 0.25% on Thursday, offering little clarity on when it might begin raising borrowing costs. However, recent inflation data from Japan has sparked speculation about a potential rate hike in early 2025. The National Consumer Price Index (CPI) rose by 2.9% year-on-year (YoY) in November, surpassing expectations and marking an increase from the previous month’s 2.3% gain. Furthermore, core CPI, excluding fresh food, also climbed to 2.7% YoY in November, up from 2.3% in October.
Despite the inflationary pressures, BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to maintaining low rates unless the economy and prices align with its forecasts. This cautious stance has left traders uncertain about the timing of future rate hikes, keeping the JPY under pressure.
USD/JPY Technical Outlook: Eyes on 158.00 Resistance Level
From a technical perspective, USD/JPY’s strong upward move past the previous multi-month high around 156.75 has sparked bullish interest. The Relative Strength Index (RSI) is approaching overbought territory, suggesting that some near-term consolidation or a modest pullback might occur before further gains. Immediate support is seen around 157.00, with further support near 156.75. A slide below these levels could lead to a deeper correction, with key support at 156.00 and 155.50, followed by the psychological level of 155.00.
For bullish traders, the focus remains on the 158.00 resistance level. A break above this mark could trigger a more substantial rally, potentially driving the pair towards the 158.45 level, followed by the 159.00 and 160.00 psychological barriers. The 160.20 level, coinciding with the upper boundary of the multi-month ascending channel, would likely act as a strong resistance.
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