Japanese Yen trims part of intraday gains, pushing USD/JPY back above 154.00

• The Japanese Yen struggles to capitalize on modest intraday gains amid the BoJ rate-hike uncertainty. 
• The risk-on mood further undermines the safe-haven JPY and lifts USD/JPY above the 154.00 mark.
• Retreating US bond yields prompts some USD profit-taking and could support the lower-yielding JPY.

The Japanese Yen (JPY) trims a part of its Asian session gains against the Greenback amid the uncertainty tied to the Bank of Japan's (BoJ) rate-hike plans. Apart from this, the prevalent risk-on environment undermines demand for the safe-haven JPY. Furthermore, expectations that US President-elect Donald Trump's policies could reignite inflation and restrict the Federal Reserve (Fed) to cut interest rates slowly act as a tailwind for the US Dollar (USD). This, in turn, assists the USD/JPY pair to rebound over 50 pips from the daily low and climb back above the 154.00 mark in the last hour. 

Meanwhile, Scott Bessent's nomination as US Treasury Secretary offers some respite to bond investors and triggers a sharp fall in the US Treasury bond yields. This, in turn, could offer some support to the lower-yielding JPY and cap gains for the USD/JPY pair. Traders might also opt to wait for the release of the November FOMC meeting minutes, the first revision of the US Q3 GDP and the US Personal Consumption and Expenditure (PCE) Price Index data later this week. This, in turn, warrants some caution before placing directional bets in the absence of any relevant US macro data. 
 

Japanese Yen bulls seem non-committed on the back of doubts over more BoJ rate hikes

• US President-elect Donald Trump nominated prominent investor Scott Bessent – a fiscal conservative – as Treasury Secretary, reassuring the bond market and pulling yields lower across the board. 
• The US Dollar, having risen for eight weeks in a row, retreats from its highest level since November 2022 as traders opt to take some profits off the table following the post-US election blowout rally.
• Despite stronger consumer inflation data from Japan and Bank of Japan Governor Kazuo Ueda's hawkish remarks, domestic political uncertainty could restrict the BoJ from tightening its monetary policy. 
• Meanwhile, investors have been scaling back their bets for another 25-basis-points rate cut by the Federal Reserve in December amid worries that Trump's policies could boost inflationary pressures. 
• According to CME Group's FedWatch Tool, traders are pricing in just over a 55% probability that the Fed will lower borrowing costs next month and a nearly 45% chance for an on-hold decision. 
• The optimism over more business-friendly policies from the new Trump administration was reinforced by the flash US PMIs, showing that business activity climbed to a 31-month high in November.
• S&P Global reported on Friday that the Composite US PMI rose to 55.3 this month, or the highest level since April 2022, suggesting that economic growth probably accelerated in the fourth quarter. 
• Reports suggest that a ceasefire deal between Israel and the Lebanese militant group Hezbollah is very close, which further fuels the risk-on mood and might cap the upside for the safe-haven JPY. 
• The focus this week will be squarely on the US Personal Consumption and Expenditure (PCE) Price Index data, which could offer cues on the Fed's interest rate path and provide a fresh impetus. 

USD/JPY needs to move beyond 154.40 to support prospects for any further intraday upside

From a technical perspective, acceptance below the 100-period Simple Moving Average (SMA) now seems to have set the stage for a further depreciating move for the USD/JPY pair. That said, any further slide might continue to find some support near the 153.30-153.25 region. This is followed by the 153.00 round figure, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. Spot prices might then accelerate the fall towards the next relevant support near mid-152.00s en route to the very important 200-day SMA, currently pegged near the 152.00 mark.

On the flip side, the 154.00 round figure now seems to act as an immediate hurdle ahead of the Asian session top, around the 154.40 region. Some follow-through buying should allow the USD/JPY pair to reclaim the 155.00 psychological mark and climb further towards the 155.40-155.50 supply zone. A sustained strength beyond the latter should pave the way for a move beyond the 156.00 mark, towards retesting the multi-month top, around the 156.75 region touched on November 15.

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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