The Japanese Yen (JPY) remained under pressure against the US Dollar (USD) during the early European session on Monday, despite a lack of strong selling momentum. Investors are cautious about the Bank of Japan’s (BoJ) plans to raise interest rates, and a generally positive global risk sentiment is weighing on the Yen, traditionally seen as a safe haven. Moreover, the widening US-Japan yield gap, fueled by the Federal Reserve’s hawkish stance, further undermines the JPY’s position.
Despite Japan’s strong inflation data released on Friday, which raised speculation about a potential BoJ rate hike in early 2025, concerns over geopolitical risks and possible Japanese government intervention are preventing aggressive bearish bets on the Yen. Meanwhile, moderate US Dollar dip-buying provides support for the USD/JPY pair, especially ahead of the US Consumer Confidence Index release.
BoJ’s Rate Hike Timing Uncertain
The BoJ maintained its short-term rate target at its December meeting, offering few insights into when it might increase borrowing costs. Governor Kazuo Ueda’s cautious tone on tightening further and a drop in Japanese government bond yields last week added to the pressure on the Yen. Meanwhile, US bond yields surged, with the 10-year Treasury reaching a six-month high, exacerbating the yield differential between the US and Japan.
Japan’s National Consumer Price Index (CPI) showed stronger-than-expected inflation in November, increasing speculation that the BoJ could raise rates in early 2025. However, the US Dollar retraced from a two-year high on Friday, as the Personal Consumption Expenditure (PCE) Price Index indicated signs of inflation slowing in the US.
US Economic Data and Consumer Confidence in Focus
US economic data released on Friday showed inflation moderating, with the PCE Index edging up to 2.4% annually in November, slightly above expectations. Core inflation remained stable at 2.8%, while consumer spending rose by 0.4% in November. The latest data has investors focusing on the upcoming US Consumer Confidence Index, which could offer short-term trading opportunities.
USD/JPY Technical Outlook
From a technical standpoint, the USD/JPY pair’s immediate support lies around 156.00-155.95, with the 155.50 area offering further potential support. A break below the 155.00 psychological level could shift the bias towards bearish traders, potentially pushing the pair lower.
On the upside, 157.00 serves as a key resistance level, with a break above this level opening the path towards 157.40-157.45 and potentially even the multi-month peak around 157.90. A move beyond 158.00 could signal further bullish momentum, targeting 158.45 and the 159.00 mark.
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