The Japanese Yen (JPY) reversed its three-day winning streak against the US Dollar (USD) during the Asian trading session on Tuesday. The shift comes amid market reactions to comments by Bank of Japan (BoJ) Deputy Governor Ryozo Himino, which highlighted ongoing uncertainty about the timing of further rate hikes.
Adding to the Yen’s decline, a risk-on sentiment in global markets—bolstered by reports that US President-elect Donald Trump’s economic team is considering a gradual increase in tariffs—undermined the appeal of the safe-haven currency.
US-Japan Yield Differential Narrows Yen’s Appeal
The Federal Reserve’s hawkish tone in December has tempered expectations for narrowing the yield gap between the US and Japan, further pressuring the JPY. This dynamic helped stall the USD/JPY pair’s retreat from its multi-month high, with resistance emerging near the 158.00 level.
However, a modest pullback in US Treasury yields and cautious USD trading below a two-year peak have capped further gains in the pair. Investors’ concerns over inflation and the pace of Federal Reserve rate adjustments have also played a role.
BoJ and Government Coordination Sparks Debate
BoJ Deputy Governor Himino reaffirmed that while rate hikes are on the table, the central bank must carefully weigh global and domestic risks. Analysts suggest that the BoJ may wait until April to confirm sustained wage growth before committing to additional monetary tightening.
Japan’s Economy Minister Ryosei Akazawa emphasized that the BoJ’s cautious approach aligns with the government’s goals to exit deflation, reflecting close cooperation between the central bank and policymakers.
Market Awaits Key US Data
In the US, profit-taking on the USD after its recent two-year peak coincided with a retreat in 10-year Treasury yields, which eased from a 14-month high. Investors are now focused on upcoming inflation data, starting with the Producer Price Index, as they gauge the Federal Reserve’s next moves.
Technical Analysis: USD/JPY Faces Resistance at 158.00
The USD/JPY pair showed resilience above the 157.00 level, buoyed by positive daily chart oscillators. A decisive break above the 158.00 mark could pave the way for further gains, targeting intermediate resistance at 158.55 and a multi-month high around the 158.85–158.90 zone. Sustained momentum could drive the pair toward the psychological 160.00 level.
On the downside, immediate support lies in the 157.00–156.90 range, with further buying opportunities around 156.25–156.20, near last week’s swing low. A decisive break below the 156.00 mark, however, would shift the short-term outlook bearish and could trigger a deeper corrective decline.
Outlook
As investors weigh the interplay of BoJ policy uncertainty and Fed hawkishness, the USD/JPY pair remains caught between near-term resistance and support levels. Upcoming US inflation data and further guidance from the BoJ are likely to drive market sentiment in the coming days.
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