The Japanese Yen (JPY) continued its downward trajectory, reaching a five-month low against the US Dollar (USD) during the early hours of trading on Friday. This ongoing decline follows the Bank of Japan’s (BoJ) decision to maintain its interest rates in a near-unanimous vote, signaling caution in light of sluggish economic growth projections for 2025. The widening gap between US and Japanese bond yields is further contributing to the Yen’s depreciation, steering investors toward the more lucrative US assets.
Adding to the Yen’s challenges, the Federal Reserve indicated a hawkish stance, suggesting a easing pace on interest rate cuts through 2025. This has bolstered the USD, which has climbed to a two-year high against the Yen, as the USD/JPY pair approaches the 158.00 level. However, data from November, which showed a slight uptick in Japan’s Consumer Price Index (CPI), offers some hope for the Yen bulls, indicating a possible interest rate rise by the BoJ in early 2025.
On Thursday, the BoJ maintained the short-term rate target in the 0.15% – 0.25% range without providing specifics on potential rate hikes. Recent statistics from the Japan Statistics Bureau indicated a year-on-year increase of 2.9% in the National CPI for November, up from 2.3% previously. Furthermore, the core CPI excluding fresh food and energy also rose, supporting the notion of forthcoming rate adjustments.
Market attention is now turned towards the US Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve’s preferred measure of inflation. This data could significantly influence the USD/JPY dynamics moving forward.
From a technical standpoint, the strong upward movement of the USD/JPY pair past the 156.75 resistance level may encourage bullish traders. However, the Relative Strength Index (RSI) approaching overbought territory suggests that a period of consolidation or pullback could be prudent before further bullish positions are taken. Should the pair experience any pullback, a support zone around 156.75 may emerge, but a drop below 157.00 could lead to further losses, potentially targeting the 156.00 and 155.50 levels. Meanwhile, bullish traders might look for confirmation above 158.00 to initiate new positions, with targets aimed at the 159.00 and 160.00 psychological barriers ahead.
