05 Feb 2025

• The Japanese Yen jumps to over a one-month top against the USD amid BoJ rate hike bets.
• Expectations for a further narrowing of the Japan-US rate differential also underpin the JPY. 
• Worries about Trump’s trade tariffs hitting Japan and a positive risk tone might cap the JPY.
• The Japanese Yen (JPY) maintains a bullish outlook during the early European session on Wednesday, with the USD/JPY pair trading slightly above the 153.00 threshold, marking its lowest point since December 13. An increase in real wages in Japan strengthens expectations that the Bank of Japan (BoJ) will implement another interest rate hike, thereby providing significant support to the JPY. Additionally, the likelihood of further policy easing by the Federal Reserve (Fed) is expected to narrow the interest rate gap between the United States and Japan, further encouraging investment in the lower-yielding JPY.
  
  At the same time, the anticipation that the Fed may reduce borrowing costs by the end of the year has led to a decline in the US Dollar (USD), reaching a new weekly low and contributing to the prevailing bearish sentiment surrounding the USD/JPY pair. Nevertheless, concerns that Japan could become a target for tariffs imposed by US President Donald Trump, coupled with the existing risk-on market sentiment, may deter traders from making new bullish investments in the safe-haven JPY. Market participants are now awaiting the US ADP report and the US ISM Services PMI for potential short-term trading opportunities in the early North American session.

• Japanese Yen remains well supported by BoJ rate hike bets; seems poised to appreciate further

• Preliminary government data released earlier this Wednesday indicated that inflation-adjusted real wages in Japan increased by 0.6% in December compared to the previous year. Additionally, the reading for the prior month was revised upward to reflect a 0.5% increase, contrasting with the initially reported 0.3% decline.
  
  In the meantime, the consumer inflation rate utilized by the government to compute real wages rose from 3.4% in November to 4.2% in December, marking the fastest increase since January 2023. This development bolsters expectations for additional policy tightening by the Bank of Japan and strengthens the Japanese Yen.
  
  Kazuhiro Masaki, the Bank of Japan's Director General of Monetary Affairs, stated that the central bank observes a gradual movement of underlying inflation towards the 2% target, with moderate increases in service prices. He further noted that the post-pandemic price rises have primarily been influenced by cost-push factors.
  
  A survey conducted by S&P Global Market Intelligence revealed that Japan's service sector activity expanded for the third consecutive month in January. Specifically, the au Jibun Bank Service Purchasing Managers’ Index (PMI) increased from 50.9 to 53.0 in January, reaching its highest level since September 2024.
• The US Bureau of Labor Statistics (BLS) disclosed in its Job Openings and Labor Turnover Survey (JOLTS) on Tuesday that the total number of job openings at the end of December was 7.6 million. This figure is a decrease from the 8.09 million openings recorded in November and falls short of the anticipated 8 million.
  
  The data indicates a deceleration in the job market, which may enable the Federal Reserve to implement further rate cuts. This situation contrasts sharply with the hawkish expectations surrounding the Bank of Japan (BoJ) and has led to a decline in the USD/JPY exchange rate, reaching a level not seen in over a month during the Asian trading session on Wednesday.
  
  Federal Reserve Vice Chairman Philip Jefferson remarked on Tuesday that there is no immediate need for additional rate cuts, as the robust economy warrants a cautious approach. He further noted that interest rates are expected to decrease in the medium term, amidst uncertainties regarding government policy.
  
  In a related development, US President Donald Trump has proposed concessions to Canada and Mexico by postponing the implementation of 25% trade tariffs for 30 days. This move, coupled with optimism for a potential trade resolution between the US and China, has alleviated concerns regarding the trade war and contributed to a favorable risk-on sentiment in the market.
  
  However, investors remain apprehensive that Japan could also become a target for Trump's trade tariffs. Japanese Prime Minister Shigeru Ishiba is scheduled to meet with Trump later this week, and their discussions may yield further insights into this risk, particularly given Japan's significant trade surplus with the US.
  
  Traders are now anticipating the upcoming US economic reports, which will include the ADP report on private-sector employment and the ISM Services PMI. These data releases are expected to provide support for the US Dollar in advance of the highly anticipated US Nonfarm Payrolls report due on Friday.

• USD/JPY remains on track to challenge 100-day SMA, break below the 153.00 mark awaited

• From a technical standpoint, the intraday decline and subsequent acceptance below the 154.00 level may serve as a new catalyst for bearish traders. Additionally, the oscillators on the daily chart have been exhibiting increasing negative momentum and remain distant from the oversold zone. This indicates that the most likely direction for the USD/JPY pair is downward, reinforcing the potential for further depreciation. Consequently, a decline towards the 153.00 level, heading towards the 100-day Simple Moving Average (SMA) currently situated around the 152.45 area, appears to be a plausible scenario.
  
  Conversely, any attempts at recovery may encounter immediate resistance around the 154.00 round number. Nevertheless, if there is sufficient follow-through buying, it could trigger a short-covering rally, propelling the USD/JPY pair towards the intermediate resistance levels of 154.70-154.75, as it approaches the psychological threshold of 155.00. Furthermore, any additional upward movement may be perceived as a selling opportunity, likely facing resistance near the 155.25-155.30 range. This latter level should be regarded as a crucial pivot point; a decisive breach above it would invalidate the negative outlook and shift the near-term bias in favor of bullish traders.