The Japanese Yen (JPY) has been gaining ground against the US Dollar (USD) as traders anticipate an interest rate hike by the Bank of Japan (BoJ) in January. This follows the release of Tokyo Consumer Price Index (CPI) inflation data last week, which strengthened the JPY. Japan’s Jibun Bank Manufacturing PMI also exceeded expectations in December, reaching 49.6 compared to the expected 49.5 and November’s 49.0 readings. Despite this improvement, factory activity has been on a decline for the sixth consecutive month.
In contrast, the US Dollar has remained subdued as US Treasury yields have declined. The 2-year and 10-year yields stand at 4.32% and 4.62%, respectively. This has added pressure on the Greenback, as traders anticipate fewer rate cuts by the US Federal Reserve (Fed) next year. The Fed has already indicated two rate cuts in 2025, and its recent hawkish pivot has impacted the USD negatively. The Tokyo CPI inflation data for December showed an increase, with the headline and core inflation rising from November’s levels.
The Bank of Japan (BoJ) has been closely monitoring economic conditions and has plans to adjust easing measures if necessary. The possibility of gradual rate hikes has been mentioned in the October meeting Minutes, with a potential path to 1.0% by late fiscal 2025. BoJ officials have emphasized the importance of monitoring economic activity, prices, and financial conditions in determining the timing and pace of monetary accommodation adjustments. BoJ Governor Kazuo Ueda expects the Japanese economy to move closer to achieving the 2% inflation target next year.
In technical analysis, the USD/JPY pair has maintained its bullish momentum on the daily chart and is trading near 157.80. The pair is within an ascending channel, with the 14-day RSI indicating a bullish trend. However, an overbought condition could trigger a downward correction if the RSI exceeds the 70 level. The immediate support lies around the nine-day EMA, while the pair may retest its monthly high of 158.08 on the upside.
The table showing the percentage change of the Japanese Yen against major currencies indicates that the JPY was the strongest against the Swiss Franc. The heat map displays the percentage changes of major currencies against each other, providing a visual representation of the currency movements. As the BoJ continues to navigate its monetary policy, traders will closely watch for any developments that could impact the JPY’s strength in the forex market. With expectations of a rate hike and adjustments to easing measures, the JPY is likely to remain in focus in the coming weeks.
