Japanese Yen advances to over one-month high against USD amid December BoJ rate hike bets

• The Japanese Yen rallied as a stronger Tokyo CPI lifted December BoJ rate hike bets.
• The USD hits a fresh two-week low and drags USD/JPY to over a two-month trough.
• The technical setup supports prospects for an extension of the pair's depreciating move.

The Japanese Yen (JPY) shot to over a one-month high against its American counterpart after data released on Friday showed that consumer prices in Tokyo, Japan's capital, accelerated for the first time in three months. This lifts market bets for another interest rate hike by the Bank of Japan (BoJ) in December, which, along with geopolitical tensions and trade war fears, provides a strong boost to the JPY. 

Apart from this, the recent decline in the US Treasury bond yields, triggered by Scott Bessent's nomination as the US Treasury secretary and expectations that the Federal Reserve (Fed) will cut rates again in December, benefits the lower-yielding JPY. Meanwhile, the US Dollar (USD) touches a two-week low and drags the USD/JPY pair below the 150.00 psychological mark for the first time since October 21. 

The Japanese Yen bulls seize control on stronger Tokyo CPI, geopolitical risks and trade war fears

• The Statistics Bureau of Japan reported on Friday that the headline Tokyo Consumer Price Index (CPI) surged 2.6% year-on-year in November as compared to 1.8% in the previous month.
• Meanwhile, core CPI, which excludes volatile fresh food items, rose 2.2% YoY and a gauge that strips out both energy and fresh food costs also climbed by 2.2% during the reported month. 
• A separate report showed Japan's Unemployment Rate edged higher as expected, to 2.5% in October and Retail Sales grew 1.6% YoY as compared to 0.5% in September and 2.2% expected. 
• Adding to this, Japan's Industrial Production registered strong growth of 3% in October as compared to 1.6% in the previous month, though the reading was short of the 3.9% rise anticipated. 
• Nevertheless, stronger inflation figures continue to fuel speculations that the Bank of Japan (BoJ) will hike interest rates again at its next monetary policy meeting in December. 
• Adding to this, worries that US President-elect Donald Trump's trade tariffs will affect the global economy and the protracted Russia-Ukraine war weigh on the market sentiment. 
• The US bond investors cheered the nomination of Scott Bessent, who is seen as a fiscal conservative and will likely want to keep a leash on US deficits, as the US Treasury Secretary. 
• This keeps the benchmark 10-year US Treasury bond yields and the US Dollar depressed near a two-week low, which is seen exerting additional pressure on the USD/JPY pair. 

USD/JPY break below the 150.00 psychological mark sets the stage for deeper losses

From a technical perspective, an intraday breakdown below the 38.2% Fibonacci retracement level of the September-November rally and the 150.00 mark could be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold zone. This, in turn, supports prospects for a further near-term depreciating move for the USD/JPY pair, towards the next relevant support near the 149.45 region. The downward trajectory could extend further to the 148.00 neighborhood, or the 50% retracement level.

On the flip side, the previous monthly trough, around the 150.45 zone, now seems to act as an immediate hurdle ahead of the 152.00 mark. The latter coincides with the very important 200-day Simple Moving Average (SMA) support breakpoint and should act as a key pivotal point. A sustained strength beyond might trigger a short-covering rally towards the 152.65-152.70 intermediate hurdle en route to the 153.00 round figure and the 153.30-153.35 congestion zone.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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