The Japanese Yen (JPY) saw some intraday selling pressure during the Asian session on Tuesday, ending its three-day winning streak against the U.S. Dollar (USD). The Yen’s retreat was further fueled by comments from Bank of Japan (BoJ) Deputy Governor Ryozo Himino, which cast doubt on the timing of the next rate hike. Additionally, a risk-on sentiment, spurred by reports suggesting that U.S. President-elect Donald Trump’s economic team is considering a gradual increase in tariffs, diminished demand for the safe-haven Yen.
Himino’s remarks indicated that while the BoJ aims to raise interest rates in the future, it must carefully monitor both domestic and international risks. Some investors are now speculating that the BoJ could delay its next rate hike until April, pending confirmation that strong wage growth will continue through the spring negotiations.
Meanwhile, the Federal Reserve’s hawkish stance further dampened hopes for a narrowing of the U.S.-Japan yield differential, which weighed on the lower-yielding Yen. This allowed the USD/JPY pair to halt its retracement from a multi-month peak set last Friday, although the pair struggled to break above the 158.00 mark. Easing concerns over Trump’s proposed trade tariffs led to a slight pullback in U.S. Treasury yields, which capped the USD below a two-year high.
Looking ahead, the BoJ faces pressure as inflationary pressures build in Japan, leaving the door open for another rate hike either in January or March. The market is currently pricing in a greater than 50% chance of a rate hike at the upcoming BoJ meeting next week. Additionally, the broader economic context, including the U.S. nonfarm payrolls report and expectations surrounding the Federal Reserve’s future actions, continues to support the U.S. Dollar.
Technically, the USD/JPY pair remains bullish, with resilience near the 157.00 level supporting upward momentum. However, the pair faces resistance at the 158.00 psychological level. A sustained break above this mark could open the door for further gains, with the next target seen around 158.55, followed by the multi-month peak of 158.85-158.90. On the downside, support is expected near 157.00-156.90, with the 156.25-156.20 range offering additional protection against further declines. A decisive break below 156.00 could shift the bias towards bearish sentiment.
Related Topics:
