- USD/JPY loses momentum around 157.75 in the early Asian session on Friday.
- Tokyo CPI rose 3.0% year-on-year in December from 2.6% previously.
- The Fed signaled a slower pace of rate cuts, which could support the US dollar.
The USD/JPY pair loses traction near 157.75 during the early Asian session on Friday. The Japanese Yen (JPY) rises after the Tokyo Consumer Price Index (CPI) inflation data. Trading volumes are likely to be low ahead of the New Year holidays next week.
Data released by Japan’s Statistics Bureau on Friday showed that Tokyo’s headline CPI inflation rose to 3.0% year-on-year in December from 2.6% in November. Meanwhile, Tokyo CPI excluding fresh food and energy stood at 2.4% year-on-year in December from 2.2% previously. Tokyo CPI excluding fresh food rose 2.4% year-on-year in December versus 2.5% expected and from 2.2% in November. The reading will likely keep the Bank of Japan (BoJ) on track for an interest rate hike in January.
BoJ Governor Kazuo Ueda said last week that the central bank expects the Japanese economy to come close to sustainably achieving the BoJ’s 2% inflation target next year. “The timing and pace of adjusting the degree of monetary accommodation will depend on developments in economic activity and prices, as well as financial conditions in the future,” Ueda said.
As for the USD, the expectation of fewer rate cuts by the US Federal Reserve (Fed) could support the Dollar in the short term. The Fed cut interest rates by a quarter point at the December meeting and projected just two rate cuts in 2025, down from its original forecast of four.
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.
