- The Japanese Yen lacks any firm intraday direction as traders await BoJ’s decision on Friday.
- Concerns about Trump’s tariff plans and the risk-on mood cap gains for the safe-haven JPY.
- Traders look to Trump’s speech for a fresh impetus ahead of the crucial BoJ policy update.
The Japanese Yen (JPY) struggles to gain any meaningful traction during the Asian session on Thursday as traders opt to move to the sidelines ahead of the crucial Bank of Japan (BoJ) monetary policy meeting. That said, the prospects for an imminent BoJ rate hike on Friday continue to act as a tailwind for the JPY. Apart from this, the better-than-expected release of Trade Balance data from Japan lends some support to the JPY.
Moreover, subdued US Dollar (USD) price action, amid bets that the Federal Reserve (Fed) will cut rates twice this year, fails to assist the USD/JPY pair to capitalize on Wednesday’s strong move up to a one-week top. Meanwhile, concerns about US President Donald Trump’s tariff plans and the risk-on mood caps the safe-haven JPY, though the divergent BoJ-Fed policy expectations might continue to act as a tailwind.
Japanese Yen traders seem non-committed ahead of Trump’s speech and BoJ policy decision
- The Japanese Yen ticked higher after government data released this Thursday showed that Japan recorded a trade surplus of ¥130.9 billion in December, compared to expectations for a deficit of ¥55 billion.
- The turnaround was driven chiefly by resilient exports, which grew more than expected, by the 2.8% YoY rate in December. This, however, marked a notable slowdown from the 3.8% rise seen in the prior month.
- Meanwhile, imports picked up after contracting by the 3.8% YoY rate in November and grew 1.8% last month, missing consensus estimates for a 2.6% rise and indicating that local demand remains subdued.
- Annual spring wage negotiations kicked off in Japan on Wednesday, with the leaders of the top business lobby and the biggest labor unions agreeing on the need for pay hikes for more workers amid soaring prices.
- The Bank of Japan, which is scheduled to announce its monetary policy decision on Friday, has repeatedly said that sustained and broad-based wage hikes are a prerequisite to raising short-term interest rates.
- The markets are pricing in over a 90% chance that the BoJ will raise interest rates at the end of the January 23-24 meeting, from 0.25% to 0.50%, which would be the highest since the 2008 global financial crisis.
- This marks a big divergence in comparison to market expectations that the Federal Reserve will lower borrowing costs at least two times by the end of this year amid signs of abating inflationary pressures in the US.
- Some follow-through uptick in the US Treasury bond yields assists the US Dollar in holding steady above the monthly low touched on Wednesday and acts as a tailwind for the USD/JPY pair amid the risk-on mood.
- Investors now look forward to the release of the US Weekly Initial Jobless Claims for some impetus ahead of US President Donald Trump’s speech later today and the outcome of a two-day BoJ policy meeting on Friday.
USD/JPY could appreciate further while above the 156.25 resistance-turned-support zone
From a technical perspective, spot prices earlier this week found decent support and bounced off the lower end of a multi-month-old ascending channel. The subsequent strength beyond the 156.00 mark and the 156.30-156.35 area favors bullish traders. Moreover, oscillators on the daily chart have again started gaining positive traction and support prospects for further gains. Hence, some follow-through move towards the 156.75-156.80 region, en route to the 157.00 round figure, looks like a distinct possibility. The latter should act as a key pivotal point, which if cleared decisively should pave the way for a further move up towards the 157.55 area, the 158.00 mark, the 158.35-158.40 region and the 159.00 neighborhood, or a multi-month top touched on January 10.
On the flip side, the 156.30-156.25 area now seems to protect the immediate downside ahead of the 156.00 mark. The next relevant support is pegged near the 155.55-155.50 area, below which the USD/JPY pair could accelerate the fall towards the 155.00 psychological mark, which now coincides with the lower boundary of the ascending channel. Some follow-through selling below the 154.80-154.75 region, or over a one-month low touched on Tuesday, will be seen as a fresh trigger for bearish traders and drag spot prices to the 154.00 round figure en route to mid-153.00s and the 153.00 mark.
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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