The Japanese Yen (JPY) has stalled its decline against the US Dollar (USD) but remains near a multi-month low, following last week’s drop. Despite the Yen’s slight rebound, the Bank of Japan‘s (BoJ) cautious approach to interest rate hikes and the Federal Reserve’s (Fed) hawkish shift continue to weigh on the JPY. This, combined with a generally positive risk environment, keeps upward momentum for the Yen limited.
While the BoJ has not ruled out a rate hike in January or March, bolstered by recent strong inflation data, market sentiment remains cautious. Geopolitical risks, including the ongoing Russia-Ukraine conflict, Middle Eastern tensions, and trade war concerns, continue to offer some support for the Yen as a safe-haven currency. However, subdued US Dollar movement and the potential for intervention by Japanese authorities limit any significant upside for the USD/JPY pair.
BoJ’s Cautious Stance and Federal Reserve’s Hawkish Outlook Weigh on Yen
Minutes from the Bank of Japan’s October meeting, released on Tuesday, highlighted the possibility of gradual rate hikes if inflation continues to meet expectations, potentially reaching 1.0% by fiscal 2025. However, the BoJ has emphasized a cautious approach, focusing on wage-driven growth amid domestic and global uncertainties. BoJ Governor Kazuo Ueda also noted last week that the central bank prefers to wait for more data before making further decisions, particularly regarding wages and economic policies under the incoming US administration.
Investor sentiment suggests that the BoJ is unlikely to hike rates in January, with the market now anticipating action in March. This uncertainty has contributed to the Yen’s weakness. Meanwhile, Japan’s Finance Minister Katsunobu Kato expressed concerns over recent currency moves, reiterating that the government would take action against excessive JPY selling.
The US Dollar remains near a two-year high, bolstered by the Fed’s less dovish outlook for 2025, while the yield on the 10-year US Treasury bond reached its highest point since May. Even a slight dip in the US Consumer Confidence index failed to dent the USD’s strength. Investors are now awaiting the Richmond Manufacturing Index release, which could provide further momentum for the USD amid low liquidity during the Christmas Eve trading session.
Technical Outlook: USD/JPY Faces Key Resistance at 158.00
On the technical front, the USD/JPY pair faces immediate resistance around the 158.00 level, reached last Friday. A sustained break above this resistance could trigger further gains, with the next targets at 158.45 and 159.00, supported by positive momentum on the daily oscillators.
On the downside, a dip below the 157.00 level may find support near the 156.65 zone. If this support fails, the pair could slide to the 156.00 level, with further downside limited by strong support at the psychological 155.00 mark. The 155.50 region is also likely to act as a buying opportunity, preventing any substantial declines.
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