- The Japanese Yen remains weak on wavering expectations of BoJ rate hikes.
- Jibun Bank’s Japan Services PMI was revised down to 50.9 from 51.4 for December.
- USD remains near two-year high amid Fed’s hawkish turn and supports USD/JPY.
The Japanese Yen (JPY) attracts new sellers at the start of a new week and remains near a multi-month low touched against its US counterpart in December due to the Bank of Japan’s (BoJ) dovish outlook. In addition to this, the prevailing risk appetite environment is weakening the safe-haven JPY. Furthermore, a bullish US Dollar (USD), supported by the hawkish signal from the Federal Reserve (Fed) and optimism over US President-elect Donald Trump’s expansionary policies, acts as a tailwind for the USD/JPY pair.
Meanwhile, data released Monday showed that business activity in Japan’s services sector expanded for the second straight month in December. This adds to a pick-up in Japan’s service sector inflation and supports the case for a BoJ rate hike in January. In addition to this, geopolitical risks and concerns over Trump’s tariff plans are holding back JPY bears from placing aggressive bets. Additionally, speculation that Japanese authorities could intervene to shore up the domestic currency should help limit the JPY’s deeper losses.
Japanese Yen bulls remain on the sidelines amid BoJ rate hike uncertainty
- The Bank of Japan last month offered few clues about how soon it might raise borrowing costs again, while emphasizing the need to be more cautious amid domestic and global uncertainties.
- Jibun Bank’s Services Purchasing Managers’ Index (PMI) was revised downward to 50.9 for December, from the preliminary reading of 51.4, still marking expansion for the second consecutive month.
- The survey further revealed that the new business subindex increased for the sixth consecutive month, employment grew for the 15th consecutive month and business sentiment remained positive.
- BoJ Governor Kazuo Ueda expects wages and prices to rise at a balanced pace this year and said the timing of adjusting monetary support depends on economic, price and financial developments.
- Markets expect the BoJ to raise rates to 0.50% by the end of March from 0.25%. The next BoJ meeting is scheduled for January 23-24, followed by another meeting on March 18-19.
- The Institute for Supply Management (ISM) reported on Friday that the US manufacturing PMI improved from 48.4 to 49.3 in December, signaling signs of resilience and growth potential.
- The Federal Reserve signaled in December that it would slow the pace of interest rate cuts in 2025, which has been boosting US Treasury yields and the US dollar in recent weeks.
- San Francisco Fed President Mary Daly said Saturday that despite significant progress in reducing price pressures over the past two years, inflation remains uncomfortably above the 2% target.
- Traders now look to the US economic docket, which includes the release of final services PMI and factory orders data, for some momentum and short-term trading opportunities later today.
- Investors this week will be faced with other important US macroeconomic data: the ISM services PMI, JOLTS job openings, the ADP private sector employment report and the Nonfarm Payrolls (NFP) report. .
USD/JPY remains confined to a familiar range held for the past two weeks
Any further move higher will likely face some resistance around the 158.00 neighborhood, or multi-month peak. A sustained move beyond will be seen as a new trigger for bullish traders and pave the way for further gains amid positive oscillators on the daily chart. The USD/JPY pair could then aim to overcome the intermediate hurdle of 158.45 and reclaim the 159.00 level. Momentum could extend further towards the psychological level of 160.00 en route towards the 160.50 area, which coincides with the upper end of a multi-month ascending channel.
On the downside, the Asian session low, around the 157.00 level, now appears to protect the immediate decline before the 156.65 horizontal zone and the 156.00 level. Any further declines could be seen as a buying opportunity near the 155.50 region and help limit losses for the USD/JPY pair near the psychological level of 155.00. The latter should act as a solid foundation for spot prices, which if broken decisively could shift the short-term bias in favor of bearish traders.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.
One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.
The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
