- The Japanese Yen sees a slight uptick following positive domestic data, but momentum remains limited.
- Worries over Trump’s tariff policies and a prevailing risk-on sentiment are weighing on gains for the safe-haven Yen.
- Traders are awaiting Trump’s speech for further direction ahead of the BoJ decision scheduled for Friday.
The Japanese Yen (JPY) gains slightly during the Asian session on Thursday after Japan’s Trade Balance data came in better than expected, although it remains near a one-week low against the US Dollar reached the previous day. Expectations of a potential interest rate hike by the Bank of Japan (BoJ) on Friday continue to support the Yen. Additionally, a muted US Dollar (USD) movement, fueled by expectations of two interest rate cuts from the Federal Reserve this year, limits the recovery of the USD/JPY pair from the one-month low seen on Tuesday.
JPY bulls appear hesitant and are holding back ahead of the important two-day BoJ policy meeting beginning Thursday. Additionally, concerns over US President Donald Trump’s tariff plans and a prevailing risk-on sentiment could limit further gains for the Yen. With differing policy expectations between the BoJ and the Fed, caution is advised before concluding that the USD/JPY pair has reached a near-term bottom. Traders are now looking to Trump’s speech at the World Economic Forum for fresh direction ahead of the highly anticipated BoJ decision on Friday.
Japanese Yen Bulls Hold Steady Amid Expectations of BoJ Rate Hike
- 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 Technical Indicators Point to Potential Break Above 157.00
From a technical viewpoint, spot prices found solid support earlier this week, rebounding from the lower boundary of a multi-month ascending channel. The subsequent move above the 156.00 level and the 156.30-156.35 zone favors a bullish outlook. Additionally, oscillators on the daily chart have turned positive, supporting the potential for further gains. As a result, a continued move towards the 156.75-156.80 range, potentially leading to the 157.00 mark, seems likely. If this level is surpassed convincingly, it could open the door for a further upward move towards 157.55, the 158.00 level, the 158.35-158.40 range, and even the 159.00 area, which marks a multi-month high from January 10.
On the downside, the 156.30-156.25 zone appears to offer immediate support, with the 156.00 level serving as the next key barrier. Below that, the next notable support is around the 155.55-155.50 area, and if this is broken, the USD/JPY pair could accelerate its decline toward the psychological 155.00 level, which aligns with the lower boundary of the ascending channel. A sustained move below the 154.80-154.75 region, marking a recent one-month low from Tuesday, would likely act as a fresh bearish signal, pushing spot prices towards the 154.00 level and possibly extending to the mid-153.00s and the 153.00 mark.
