Japanese Yen hangs near multi-month low against USD; bears have the upper hand

출처 Fxstreet
  • The Japanese Yen struggles to lure buyers amid wavering BoJ rate hike expectations.
  • The risk-on mood and the wider US-Japan yield differential also undermine the JPY.
  • Subdued USD demand acts as a headwind for USD/JPY ahead of the US CPI report.

The Japanese Yen (JPY) struggles to gain any meaningful traction and languishes near a multi-month low against its American counterpart amid doubts over the Bank of Japan's (BoJ) rate hike plans. Signs of broadening inflationary pressures in Japan keep the door open for a BoJ rate hike in January or March. Adding to this, BoJ Deputy Governor, Ryozo Himino, signaled on Tuesday that a rate hike remains a tangible possibility at the upcoming meeting. Himino's comments, however, lacked direct clues on the possibility of a January rate hike. Moreover, some investors are betting that the BoJ may wait until the spring negotiations before pulling the trigger. 

Meanwhile, the Federal Reserve's (Fed) hawkish shift in December has been a key factor behind the recent surge in the US Treasury bond yields. This resulted in the widening of the US-Japan yield differential, which, in turn, is seen as another factor undermining the lower-yielding JPY. Apart from this, the risk-on mood is holding back traders from placing bullish bets around the safe-haven JPY. That said, subdued US Dollar (USD) price action acts as a headwind for the USD/JPY pair ahead of the release of the latest US consumer inflation figures. The crucial US Consumer Price Index (CPI) report might influence the Fed's policy path and drive the USD demand. 

Japanese Yen bulls remain on the sidelines amid BoJ rate hike uncertainty

  • A fall in Japan's household spending and real wages for the fourth successive month in November amid higher prices, keeping the door open for a rate hike by the Bank of Japan in January or March.
  • BoJ Deputy Governor Ryozo Himino said on Tuesday that the central bank will discuss potentially raising the policy rate at the January meeting, though he did not strongly signal a hike next week.
  • Some economists think that the BoJ will assess US President-elect Donald Trump's economic policies and wait until the results of Japan's annual spring wage negotiations become available in March.
  • The Reuters Tankan poll showed that Japanese manufacturers' sentiment recovered in January after a dip last month, but their outlook remains flat due to uncertainty over proposed Trump policies.
  • The yield on the benchmark 10-year US government bond remains close to a 14-month high in the wake of growing acceptance that the Federal Reserve will pause its rate-cutting cycle later this month. 
  • Against the backdrop of the upbeat US Nonfarm Payrolls report released on Friday, a moderate rise in the US producer prices makes it difficult for investors to project the Fed's next moves on interest rates.
  • The Bureau of Labor Statistics (BLS) reported that the Producer Price Index rose 3.3% in December from a year earlier, marking a notable uptick from 3.0% previous, though it fell short of the 3.4% expected. 
  • The US Dollar extended Monday's retracement slide from over a two-year peak and acts as a headwind for the USD/JPY pair as traders now look to the US Consumer Price Index for a fresh impetus. 
  • The headline US CPI is expected to rise 0.3% in December and the yearly rate to 2.9% from 2.7% in November. The core CPI, meanwhile, is anticipated to hold steady and come in at a 3.3% YoY rate. 

USD/JPY technical setup favors bulls, sustained strength above 158.00 awaited

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From a technical perspective, bulls are likely to wait for sustained strength and acceptance above the 158.00 mark before placing fresh bets. Given that oscillators on the daily chart are holding in positive territory and are still a distance away from being in the overbought zone, the USD/JPY pair might then aim to retest the multi-month top, around the 158.85-158.90 zone. Some follow-through buying above the 159.00 mark will set the stage for further gains towards the next relevant hurdle near the mid-159.00s before spot prices aim to reclaim the 160.00 psychological mark.

On the flip side, the 157.45 area now seems to protect the immediate downside ahead of the 157.00 mark. Any further slide could be seen as a buying opportunity around the 156.25-156.20 area, or last week's swing low. This should help limit the downside for the USD/JPY pair near the 156.00 mark, which if broken decisively might shift the near-term bias in favor of bearish traders and pave the way for some meaningful corrective decline.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as 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. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

 

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