The USD/JPY pair remains relatively stable just above the mid-157.00s during early European trading hours on Tuesday. The Japanese Yen (JPY) holds a neutral bias against the US Dollar (USD) as comments from Bank of Japan (BoJ) Deputy Governor Ryozo Himino add to the uncertainty surrounding the timing of future rate hikes. Additionally, the widening US-Japan interest rate differential, driven by the Federal Reserve’s hawkish stance, continues to weigh on the lower-yielding JPY.
In the US, reports that President-elect Donald Trump’s economic team is considering gradual increases in tariffs have boosted investor sentiment, diminishing demand for traditional safe-haven assets like the Yen. Despite this, easing concerns about Trump’s trade policies have led to a pullback in US Treasury bond yields, which has provided some support to the JPY and prevented the USD/JPY pair from capitalizing on its intraday move above the 158.00 mark.
Traders are now focused on the upcoming release of the US Producer Price Index (PPI) for short-term trading opportunities.
The Bank of Japan’s cautious approach to rate hikes remains a key theme, with Himino emphasizing the need to monitor various risks before taking further action. Investors speculate that the BoJ may wait until April to assess whether strong wage momentum will carry into spring negotiations before raising interest rates. This has led to a market-implied 50% chance of a rate hike at the BoJ’s next meeting in January or March.
On the economic front, Japanese Economy Minister Ryosei Akazawa has stated that the BoJ’s potential rate hikes align with the government’s goal to exit deflation, with both institutions working in tandem. Meanwhile, US President-elect Trump’s proposed gradual tariff hikes have caused a modest pullback in US Treasury yields, prompting profit-taking in the US Dollar.
Looking at the technical picture, the USD/JPY pair is expected to test the 156.25-156.20 range on any pullbacks, which could present a buying opportunity for traders. If the pair breaks through 158.00, further upside towards the 158.55 and 158.85 zones could materialize. Conversely, a drop below the 156.00 mark could shift the bias towards a bearish correction.
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