The Japanese Yen (JPY) came under renewed selling pressure at the start of the week, approaching its multi-month low against the US Dollar (USD) seen in December. The Bank of Japan’s (BoJ) dovish stance and a broader risk-on sentiment weighed heavily on the safe-haven currency, while the USD/JPY pair was further bolstered by the Federal Reserve’s (Fed) hawkish signals and optimism over US President-elect Donald Trump’s proposed expansionary policies.
Economic Data and BoJ Outlook
Monday’s data highlighted an expansion in Japan’s service sector activity for the second consecutive month in December. The au Jibun Bank Services PMI was revised slightly lower to 50.9 from the preliminary reading of 51.4 but still reflected growth. The subindex for new business rose for the sixth straight month, employment increased for the 15th consecutive month, and business sentiment remained positive.
Despite signs of resilience in the service sector, doubts linger over the BoJ’s readiness for further rate hikes. In its last meeting, the BoJ emphasized the need for caution amid domestic and global uncertainties. Markets currently expect the central bank to raise rates to 0.50% by the end of March, up from the current 0.25%. Governor Kazuo Ueda has stated that monetary adjustments depend on developments in economic conditions, prices, and financial stability. The next BoJ policy meeting, scheduled for January 23-24, will be closely watched for signals of policy shifts.
Geopolitical and Market Sentiments
Geopolitical concerns, including uncertainty around Trump’s potential tariff policies and ongoing global conflicts, have kept JPY bears cautious. Speculation about possible intervention by Japanese authorities to support the Yen also limits aggressive selling. However, the USD continues to dominate as the Fed’s hawkish stance fuels optimism about US economic resilience.
The Fed signaled in December its intent to slow the pace of rate cuts in 2025, reinforcing expectations of higher Treasury yields and a stronger USD. Recent US economic data, including an improvement in the ISM Manufacturing PMI to 49.3 in December and lower-than-expected initial jobless claims, further underscores this strength.
USD/JPY Technical Outlook
The USD/JPY pair trades with a bullish bias, supported by positive momentum indicators on the daily chart.
Upside Potential: Immediate resistance lies near the 158.00 level, the multi-month peak. A sustained breakout above this mark could trigger a rally toward 158.45, 159.00, and the psychological level of 160.00. The next target would be the 160.50 area, aligned with the upper boundary of a long-term ascending channel.
Downside Support: The 157.00 level serves as initial support, followed by the 156.65 horizontal zone. A further decline could attract buyers near 155.50 and 155.00, the latter acting as a robust base. A decisive break below this zone might shift the short-term bias in favor of bearish traders.
Looking Ahead
This week’s focus will include key US macroeconomic data, such as the ISM Services PMI, JOLTS Job Openings, the ADP private-sector employment report, and Nonfarm Payrolls (NFP) data. These releases, alongside developments from the BoJ, will likely drive the USD/JPY pair’s near-term trajectory.
While the Yen remains pressured by the BoJ’s dovish stance and global risk appetite, geopolitical risks and domestic intervention prospects may provide occasional support, creating a volatile yet trend-driven market environment.
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