The USD/JPY currency pair experienced a significant intraday surge, rallying over 200 pips after the Bank of Japan (BoJ) opted to keep interest rates unchanged. The widening gap between US and Japanese interest rates is leading to an outflow of capital from the Japanese Yen (JPY), despite a prevailing risk-off market sentiment that typically supports safe-haven currencies like the JPY.
Following the BoJ’s recent meeting, the USD/JPY climbed back toward the mid-156.00s, reaching levels reminiscent of a multi-month high observed in November. The BoJ, led by Governor Kazuo Ueda, noted that while the central bank remains cautious about the economy and price trends, it is willing to adjust the policy rate based on future economic data. The lack of any indication of a potential rate hike in the first quarter of 2025 has fueled aggressive selling pressures on the JPY, providing an upward impetus for the currency pair.
In the US, the Federal Reserve’s decision to lower its benchmark interest rate by 25 basis points has also influenced the USD/JPY dynamics. This recent rate cut marks the third reduction since September. However, Fed policymakers appear more restrained about future cuts, projecting only two more during the next year, compared to earlier forecasts. This hawkish sentiment has pushed US government bond yields to their highest levels since May, further widening the interest rate differential between the US and Japan, which in turn encourages investment flows away from the JPY.
The prevailing geopolitical tensions and fears of a trade war are tempering risk appetite across markets, as evidenced by declines in global equity indices. Investors are now closely monitoring upcoming US economic data, including the final Q3 GDP report and weekly jobless claims, while the attention will soon shift to the Personal Consumption Expenditure (PCE) Price Index for insights on inflation trends.
Technically, the USD/JPY faces immediate resistance near the multi-month high of around 156.75, with bullish momentum expected if the pair surpasses the 157.00 level. Conversely, any retreat below 156.00 could present buying opportunities, though a fall below the 155.45 – 155.40 support range may trigger further selling pressure, potentially dragging the pair towards significant psychological levels around 155.00.
