The Japanese Yen (JPY) extended its rally for a fourth consecutive session on Friday, climbing to a nearly two-month high against the U.S. Dollar (USD) in early Asian trading. The continued strength of the JPY is driven by growing expectations that the Bank of Japan (BoJ) will proceed with further interest rate hikes, narrowing the rate differential between Japan and other major economies, including the Federal Reserve (Fed).
Adding to the Yen’s momentum, the U.S. Dollar has retreated sharply from its two-year peak, pushing the USD/JPY pair below the 151.00 mark for the first time since December 10. However, lingering uncertainty over U.S. President Donald Trump’s tariff policies is preventing further gains for the Japanese currency. Meanwhile, investors are exercising caution ahead of the highly anticipated U.S. Nonfarm Payrolls (NFP) report, prompting a modest recovery in the USD/JPY pair.
BoJ’s Hawkish Stance Bolsters Yen Strength
The Yen’s appreciation is supported by recent comments from key BoJ officials, signaling the likelihood of further monetary tightening. Kazuhiro Masaki, Director General of the BoJ’s monetary affairs department, stated that the central bank would continue to raise interest rates if underlying inflation moves toward its 2% target as expected.
Japan’s Economy Minister Ryosei Akazawa echoed this sentiment, emphasizing the government’s commitment to eliminating the deflationary mindset by boosting wages and implementing policies to encourage firms to raise salaries. Additionally, the BoJ’s Summary of Opinions from its January meeting reinforced the possibility of further rate hikes, further strengthening the Yen.
Economic data released this week added to the case for tighter policy, with Japan’s inflation-adjusted real wages rising 0.6% year-on-year in December, marking a second consecutive monthly increase. Meanwhile, Japan’s 10-year government bond yield remains near a 14-year high, while the benchmark 10-year U.S. Treasury yield has dropped to its lowest level since December, reflecting expectations that the Fed will maintain an easing bias.
U.S. Rate Outlook Weighs on Dollar
While the Fed remains cautious about inflation, comments from U.S. policymakers have done little to bolster the Dollar. U.S. Treasury Secretary Scott Bessent stated that the Trump administration is not overly concerned about the Fed’s policy trajectory and is focused on reducing long-term bond yields.
Chicago Fed President Austan Goolsbee noted that inflation concerns are primarily due to base effects and that policymakers should be cautious about potential economic overheating. Meanwhile, Dallas Fed President Lorie Logan acknowledged significant progress in curbing inflation but reiterated that the labor market remains too strong for immediate rate cuts.
Amid these mixed signals, traders are reluctant to take large positions ahead of the NFP report, leading to short-covering in the USD/JPY pair.
USD/JPY Faces Resistance, Bearish Technical Outlook Prevails
From a technical standpoint, the recent break below the 152.50-152.45 confluence—formed by the 100-day and 200-day Simple Moving Averages (SMAs)—has reinforced the bearish sentiment. Oscillators on the daily chart remain in negative territory, suggesting that the USD/JPY pair is likely to face selling pressure on any recovery attempts.
Resistance is expected around the 152.00 level, with stronger resistance near the 152.50-152.45 zone. A sustained move above this region could push the pair toward the psychological 153.00 level.
On the downside, immediate support is at 151.00. A decisive break below this level could accelerate the decline toward the 150.55-150.50 support zone, with further downside potential toward the key 150.00 mark. A deeper sell-off could see the pair testing 149.60 and potentially revisiting the December low around 148.65.
With the market awaiting key U.S. labor data, volatility in the USD/JPY pair is likely to persist in the near term.
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