24 Feb 2025

The Japanese Yen (JPY) is currently under pressure against the US Dollar during the early European trading session, although it remains near its highest level since early December, which was reached earlier today. Bank of Japan (BoJ) Governor Kazuo Ueda has indicated a willingness to increase government bond purchases should long-term interest rates experience a significant rise. This has resulted in a further decline in Japanese government bond (JGB) yields, leading to some intraday selling of the JPY and allowing the USD/JPY pair to recover from a dip below the 149.00 mark.

In addition, investors appear to be increasingly confident that the BoJ will implement interest rate hikes more aggressively than previously anticipated, driven by indications of widespread inflation in Japan and the expectation that ongoing wage increases will boost consumer spending. This sentiment is preventing JPY bears from making substantial bets against the currency. Furthermore, renewed selling of the US Dollar, despite the Federal Reserve's hawkish position, is limiting the USD/JPY pair's efforts to recover. Therefore, it would be wise to await strong follow-through buying before concluding that the spot prices have reached their lowest point.

Data released on Friday indicated that Japan's core inflation reached a 19-month peak in January, bolstering expectations that the Bank of Japan will continue to raise interest rates. BoJ Governor Kazuo Ueda cautioned on Friday that the central bank may increase its bond purchases if unusual market fluctuations lead to a significant rise in government bond yields. The yield on the benchmark Japanese government bond (JGB) has retreated further from its highest level since November 2009, which was established last week, thereby limiting gains for the Japanese Yen.

A disappointing sales forecast from Walmart has raised concerns regarding the health of US consumers, causing the US Dollar to decline to its lowest point in over two months during the Asian trading session on Monday. The flash S&P Global US Composite PMI fell to 50.4 in February, down from 52.7 in January, indicating a slowdown in overall business activity within the private sector.

In a separate report, the University of Michigan revealed that its US Consumer Sentiment Index fell more than anticipated, decreasing from 71.7 to 64.7 in February, marking a 15-month low. Additionally, households expect inflation to surge to 4.3% over the next year—the highest level since November 2023—and to average 3.5% over the next five years, the highest since 1995. Federal Reserve officials remain cautious about potential interest rate cuts due to persistent inflation and uncertainties surrounding US President Donald Trump's tariff strategies and protectionist measures.

From a technical standpoint, any upward movement is expected to encounter significant resistance around the psychological level of 150.00. Continued buying pressure may propel the USD/JPY pair towards last Friday's swing high, situated in the 150.70-150.75 range, as it approaches the horizontal support breakpoint at 150.90-151.00. This level is anticipated to serve as a crucial pivot point; a decisive breach could initiate a short-covering rally, pushing prices beyond the intermediate resistance at 151.40 and towards the 152.00 level. However, there is a risk that momentum may dissipate rapidly near the 152.65 region, which corresponds to the critical 200-day Simple Moving Average (SMA).

Conversely, the 149.00 level, along with the Asian session low around 148.85, appears to present an immediate obstacle ahead of the 148.65 area, which marks the trough from December 2024. A failure to maintain these support levels could expose the USD/JPY pair to a more pronounced decline towards the round figure of 148.00. This downward movement may continue towards the next significant support level near 147.45 before prices ultimately reach the 147.00 mark.