- The Japanese Yen remains well supported by rising bets for a BoJ rate hike in January.
- The narrowing of the US-Japan yield differential provides an additional boost to the JPY.
- The USD hangs near a one-week low and further contributes to the USD/JPY pair’s slide.
The Japanese Yen (JPY) attracts buyers for the second consecutive day on Thursday on the back of the Bank of Japan Governor Kazuo Ueda’s hawkish comments, signaling a potential rate hike next week. Adding to this, signs of broadening inflationary pressures in Japan support prospects for further policy tightening by the BoJ, pushing yields on Japanese Government Bonds (JGBs) to multi-year highs. In contrast, the US Treasury bond yields retreated sharply on Wednesday in reaction to benign US inflation data. The resultant narrowing of the US-Japan yield-differential is seen as another factor undermining the JPY.
Meanwhile, cooler-than-expected US inflation increased the chances that the Federal Reserve could cut interest rates twice this year. This keeps the US Dollar (USD) bulls on the defensive and drags the USD/JPY pair to a fresh four-week low, around the 155.20 area during the Asian session on Thursday. That said, the risk-on mood might hold back traders from placing fresh bullish bets around the safe-haven JPY and offer some support to the currency pair. Investors now look to the US economic docket – featuring the release of monthly Retail Sales and Weekly Initial Jobless Claims – for short-term opportunities.
Japanese Yen remains supported by BoJ Governor Ueda’s hawkish comments on Wednesday
- Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank will debate whether to raise interest rates at the next policy meeting on January 23-24.
- Ueda’s remarks echo Deputy Governor Ryozo Himino’s comments on Tuesday and lift bets for an interest rate hike next week, providing a strong boost to the Japanese Yen.
- The yield on the benchmark 10-year Japanese government bond advanced to its highest level since 2011 amid the prospects for further policy tightening by the BoJ.
- In contrast, the US Treasury bond yields fell on Wednesday following the release of the US Consumer Price Index (CPI), which eased fears that inflation was accelerating.
- The US Bureau of Labor Statistics (BLS) reported that the headline CPI rose 0.4% in December and the yearly rate accelerated to 2.9% from 2.7% in the previous month.
- The core gauge, which excludes volatile food and energy prices, rose 3.2% on a yearly basis as compared to the 3.3% increase recorded in November and expectations.
- The US Dollar dived to a one-week low following the release of the latest US consumer inflation figures and contributed to the USD/JPY pair’s decline on Wednesday.
- Richmond Fed President Tom Barkin said that fresh inflation data show progress on lowering inflation to the central bank’s 2% goal, but added that rates should remain restrictive.
- Against the backdrop of easing fears about US President-elect Donald Trump’s disruptive trade tariffs, softer US inflation data remains supportive of the upbeat market mood.
- Traders look to the US macro data for a fresh impetus later during the North American session, though the focus will remain glued to the upcoming BoJ policy meeting.
USD/JPY could find support near 155.00 before dropping to test ascending channel support
Any further slide is likely to find some support near the 155.00 psychological mark, below which the USD/JPY pair could slide to the 154.55-154.50 region. The latter represents the lower boundary of a four-month-old upward-sloping channel and should act as a key pivotal point. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent retracement slide from a multi-month peak touched last Friday. Spot prices might then weaken further below the 154.00 mark and test the next relevant support near the 153.40-153.35 horizontal zone.
On the flip side, any attempted recovery might now confront resistance near the 156.00 mark ahead of the 156.35-156.45 region and the 156.75 area. Some follow-through buying, leading to a subsequent strength beyond the 157.00 mark, might shift the bias back in favor of bullish traders and lift the USD/JPY pair to the 155.55-155.60 intermediate hurdle en route to the 158.00 round figure. The momentum could extend further towards challenging the multi-month peak, around the 158.85-158.90 region.
Bank of Japan FAQs
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%.
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.
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.
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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