- The yen was also weakened by the Bank of Japan’s surprise rate hike.
- au Jibun Bank Japan services PMI revised to 50.9 from 51.4 in December.
- The dollar traded near two-year highs following the Fed’s hawkish stance, supporting the dollar/yen pair.
The Japanese yen (JPY) continued to fall against the U.S. dollar, sending USD/JPY close to multi-month highs in December. Uncertainty over when the Bank of Japan will raise interest rates again and risk appetite have been key drivers of the safe-haven yen. The spread between U.S. and Japanese bond yields has also widened recently, driven by hawkish signals from the Federal Reserve (Fed), helping to pull the currency away from the lower-yielding yen.
Meanwhile, data released early Monday showed that Japan’s services market expanded for the second month of December. That came on the back of a recovery in Japan’s financial services sector and a rise in inflation data from the Bank of Japan in January. Geopolitical risks and concerns over Trump’s tariff plans also dampened yen bears’ aggressive bets. The dollar’s slight recovery from two-year highs could cap any gains in USD/JPY.
Japanese Yen Remains Unattractive Amid Ongoing BoJ Rate Hike Uncertainty
- The Bank of Japan gave little indication last month about when it might raise interest rates, while stressing the need for greater caution amid local and global uncertainties.
- The Au Jibun Banking Services Purchasing Managers’ Index (PMI) was revised up to 50.9 in December from its initial reading of 51.4, continuing to expand for a second month.
- The survey further revealed that the subindex of new business rose for a sixth straight month, employment grew for the 15th consecutive month and business sentiment stayed positive.
- BoJ Governor Kazuo Ueda hopes that wages and prices increase at a balanced pace this year and said that the timing of adjusting monetary support depends on economic, price and financial developments.
- Markets expect that the BoJ will raise rates to 0.50% by the end of March from 0.25%. The next BoJ meeting is scheduled on January 23-24 followed by another meeting on March 18-19.
- The Institute of Supply Management (ISM) reported on Friday that the US Manufacturing PMI improved from 48.4 to 49.3 in December, pointing to signs of resilience and potential for growth.
- The Fed’s December statement that it would slow the pace of interest rate cuts through 2025 has caused U.S. Treasury yields and the dollar to rise in recent weeks.
- Despite significant progress in lowering interest rates over the past two years, inflation still remains well below the 2% target, San Francisco Fed President Mary Daly said Saturday.
- Investors have been focused on the upcoming economic conference in the US, where PMI services and order data will be released, and on short-term trading after the day.
- Investors will be watching other key U.S. data this week – the ISM Services PMI, JOLTS job openings, the ADP Private Sector Employment Report and the Nonfarm Payrolls Report (NFP).
USD/JPY Poised for Acceleration Beyond the 158.00 Threshold
Further progress will see some resistance near 158.00 or near multi-month highs. Further intervention will be seen as a new phenomenon for bullish traders and a way to profit more from the calendar’s good oscillators. After that, USD/JPY is likely to break above the 158.45 intermediate level and return to 159.00. This period could extend to the 160.00 psychological level and the 160.50 area, which coincides with the peak of the multi-month uptrend.
On the other hand, the Asian session low near 157.00 now seems to be protecting the 156.65 area, with the immediate decline ahead of 156.00. Further declines could be seen as buying near the 155.50 area, helping to limit USD/JPY’s decline near the psychological 155.00 barrier. The latter should provide a stable base for selling prices, and a decision to buy could tip the trend in favor of a bearish market.
