The Japanese Yen strengthened following the latest Consumer Price Index (CPI) inflation data from Tokyo, which showed an increase in December. The Tokyo CPI rose to 3.0% year-over-year, up from 2.6% in November. This development contributed to a pullback in the USD/JPY pair, signaling renewed momentum for the Yen as expectations rose for a potential interest rate hike by the Bank of Japan (BoJ) in January.
In December, the Tokyo CPI excluding fresh food and energy also saw a rise, climbing to 2.4% year-over-year compared to 2.2% the month prior. This increase, though slightly below the anticipated 2.5%, still reflects ongoing inflationary pressures in the economy. The BoJ has signaled its readiness to modify its monetary easing policies depending on economic conditions, with board members emphasizing the need to monitor wage negotiation trends closely to gauge the necessity for any adjustments to monetary support measures.
As the Japanese Yen gained strength, the US Dollar Index, which tracks the dollar against six major currencies, held around 108.10, just below its highest point since November 2022. Despite this slight upward movement, gains for the dollar were tempered by subdued US Treasury bond yields, with the 2-year and 10-year yields recorded at 4.32% and 4.57%, respectively. There’s a consensus that support for the dollar could remain steady due to reduced expectations for rate cuts by the Federal Reserve following its recent adjustments to interest rate forecasts.
Japan’s Finance Minister also pointed out concerns regarding sharp and one-sided foreign exchange movements, indicating a readiness by officials to take appropriate actions against excessive fluctuations in currency values. The overall monetary landscape suggests a cautious approach, balancing inflation goals with economic growth amid varying domestic and global uncertainties.
With the USD/JPY trading around 157.70, technical analysis indicates a continuing upward trend within an ascending channel pattern. Should the pair manage to break above its recent monthly high of 158.08, it could set its sights on a target near 160.30. Conversely, immediate support is anticipated around 156.48, aligned with the channel’s lower boundary, which could act as a crucial pivot point for the currency pairing.
