14 Jan 2025

• The Japanese Yen attracts fresh sellers on Tuesday amid wavering BoJ rate hike expectations. 
• Easing fears about Trump's tariff plans boosts the risk sentiment and undermines the JPY.
• Hawkish Fed-inspired elevated US bond yields favor the USD bulls and support USD/JPY.
• The Japanese Yen (JPY) experienced a decline in intraday selling during the Asian session on Tuesday, effectively ending its three-day streak of gains against the US Dollar. Statements made by Ryozo Himino, the Deputy Governor of the Bank of Japan (BoJ), have contributed to the prevailing uncertainty regarding the timeline for the central bank's next interest rate increase. Additionally, a risk-on sentiment, supported by news that economic advisors to US President-elect Donald Trump are considering a gradual increase in tariffs, has further diminished the appeal of the safe-haven JPY.
• The Federal Reserve's hawkish stance in December has diminished expectations for an immediate reduction in the US-Japan yield differential, contributing to a shift in capital away from the lower-yielding Japanese Yen (JPY). Consequently, this development has hindered the USD/JPY pair's recovery from a multi-month high reached last Friday, although the intraday upward movement encounters resistance around the 158.00 level. Additionally, alleviated concerns regarding potentially disruptive trade tariffs under the Trump administration have led to a slight decline in US Treasury bond yields, which keeps the US Dollar (USD) bulls cautious below a two-year high, thereby limiting the pair's upward potential.

• Japanese Yen bulls remain on the sidelines amid doubts about BoJ's rate-hike plans

• Bank of Japan Deputy Governor Ryozo Himino stated on Tuesday that while the central bank is inclined towards further interest rate increases, it is essential to monitor various domestic and international risks closely. Additionally, some investors speculate that the Bank of Japan may postpone any rate hikes until April to confirm that robust wage growth will persist into the spring negotiations. Japan's Economy Minister Ryosei Akazawa remarked that the Bank of Japan's deliberation on a rate increase aligns with the government's objective to overcome deflation, emphasizing the effective collaboration between the central bank and the government.
  
  A Bloomberg report from Monday indicated that the economic team of US President-elect Donald Trump is contemplating a strategy of gradual import tariff increases in the upcoming months. This proposal, aimed at mitigating a sudden rise in inflation, has led to a slight decline in US Treasury bond yields and prompted some profit-taking in the US Dollar from its two-year high. In light of the Federal Reserve's hawkish stance, the positive US Nonfarm Payrolls report released on Friday has raised skepticism regarding potential rate cuts in 2025, which is expected to bolster the USD. The yield on the benchmark 10-year US government bond has retreated from a 14-month peak as investors anticipate significant inflation data, beginning with the Producer Price Index to be released later today.

• USD/JPY faces rejection near the 158.00 pivotal hurdle; downside potential seems limited

• From a technical perspective, the overnight resilience below the 157.00 mark and the subsequent move up, along with positive oscillators on the daily chart, favor bullish traders. That said, intraday failure near the 158.00 round figure marks it prudent to wait for a sustained strength beyond the said handle before positioning for additional gains. The USD/JPY pair might then accelerate the momentum towards the 158.55 intermediate hurdle en route to 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 157.00-156.90 area might continue to protect the immediate downside. 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.