USD/JPY declines to near 154.00 even though US Dollar ticks up

• USD/JPY falls to near 154.00 despite the US Dollar remaining firm.

• Donald Trump’s policies are expected to boost US inflation and economic growth.

• BoJ Ueda didn’t commit to an interest rate hike move for December.

The USD/JPY pair slides to near 154.00 in Thursday’s European session. The asset weakens even though the US Dollar (USD) edges higher, with the US Dollar Index (DXY) rising to near 106.70. The USD Index strives to revisit the yearly high of 107.00 as investors expect that there will be fewer interest rate cuts from the Federal Reserve (Fed) in its current policy-easing cycle.

Fed’s data-dependent approach is expected to refrain it from cutting interest rates aggressively as market experts project a rebound in the United States (US) inflation and see economic growth accelerating, given that President-elected Donald Trump’s victory in both houses will allow him to implement his economic agenda smoothly.

Trump vowed to raise import tariffs universally by 10% and lower taxes, a move that would not allow the Fed to go for deeper rate cuts. For the December meeting, there is a 56% probability that the Fed will cut interest rates by 25 basis points (bps) to 4.25%-4.50%, which has been diminished from 72% a week ago, according to the CME FedWatch tool.

Global brokerage firm Nomura expects the Fed to pause the policy-easing cycle in December. "We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” analysts at Nomura said.

Meanwhile, the Japanese Yen (JPY) performs strongly even though Bank of Japan (BoJ) Governor Kazuo Ueda refrained from committing to an interest rate hike in the December meeting but kept the option on the table in his commentary at a Europlace Financial Forum in Tokyo in early Thursday.

“We decide monetary policy meeting by meeting on basis of information that becomes available up to the meeting” Kazuo Ueda said and further added, “There's still a month to go till next policy meeting, there will be more information available by then.”