08 Jan 2025

• The Japanese Yen continues to be undermined by the BoJ rate-hike uncertainty. 
• The widening US-Japan yield differential further weighs on the lower-yielding JPY.
• The Fed’s hawkish stance acts as a tailwind for the USD and the USD/JPY pair.
• The Japanese Yen (JPY) is stabilizing against the US Dollar as the European trading session approaches on Wednesday, remaining near a multi-month low reached the previous day. Uncertainties regarding the timing of the next interest rate increase by the Bank of Japan (BoJ), coupled with the recent expansion of the US-Japan interest rate differential, are significant factors that continue to exert pressure on the lower-yielding JPY.
  
  Nevertheless, speculation regarding potential intervention by Japanese authorities to support the domestic currency, along with geopolitical risks, is preventing traders from making new bearish positions on the safe-haven JPY. At the same time, the US Dollar (USD) is finding it challenging to gain substantial momentum, as investors are choosing to await the release of the FOMC meeting Minutes. This situation further restricts any potential upward movement for the USD/JPY pair.

• Japanese Yen traders remains on the sidelines ahead of FOMC Minutes

  Japan's Finance Minister Katsunobu Kato made a statement on Tuesday, indicating that the government is prepared to take necessary measures against excessive foreign exchange fluctuations, particularly those influenced by speculators.
  
  The Bank of Japan has left market participants uncertain regarding the timing of its next interest rate increase, which has contributed to the depreciation of the Japanese Yen and propelled the USD/JPY exchange rate to a nearly six-month peak on Tuesday.
  
  BoJ Governor Kazuo Ueda remarked on Monday that the central bank is willing to raise interest rates further if the economy shows continued improvement, although the timing will depend on various economic, price, and financial factors.
  
  Some investors are speculating on a potential rate hike during the Bank of Japan's meeting scheduled for January 23-24, driven by increasing inflationary pressures in Japan, while others anticipate a higher likelihood of such a move occurring in March or later.
  
  The yield on the benchmark 10-year Japanese government bond (JGB) reached its highest point since July 2011; however, this did not provide any relief for JPY bulls in light of the growing yield differential between the US and Japan.
  
  US Treasury yields continued their upward trend following the release of data on Tuesday that indicated a robust economy, suggesting that the Federal Reserve may implement fewer interest rate cuts this year than previously anticipated.
  
  The Institute for Supply Management reported an increase in its Non-Manufacturing Purchasing Managers' Index (PMI) to 54.1 in December, with the Prices Paid component reaching its highest level since September 2023.
  
  Additionally, the Job Openings and Labor Turnover Survey (JOLTS) revealed that the number of job openings on the last business day of November was 8.09 million, an increase from the 7.83 million reported in October.
  
  This data aligns with a strong pace of economic activity, which, coupled with the policies of US President-elect Donald Trump, could potentially reignite inflationary pressures and raise questions about further rate cuts by the Federal Reserve.
  
  Traders are now anticipating the upcoming US economic reports, which will include the ADP report on private-sector employment and the regular Weekly Initial Jobless Claims.

  
  

  USD/JPY conoslidates near multi-month top, bullish potential intact

  From a technical perspective, acceptance above the 158.00 round figure, along with positive oscillators on the daily chart , favor bulls for additional gains. Hence, a subsequent strength towards the 159.00 mark, en route to the 159.45 intermediate hurdle and the 160.00 psychological mark, looks like a distinct possibility.

  On the flip side, the 157.60 area now seems to protect the immediate downside ahead of the 157.35-157.30 zone and the 157.00 mark. The latter should act as a pivotal point, below which the  could slide to the 156.25 intermediate support en route to the 156.00 mark. Some follow-through selling might negate the positive bias and pave the way for a deeper corrective decline.