The USD/JPY currency pair has experienced a downward trend as market participants evaluate the implications of potential interest rate hikes by the Bank of Japan (BoJ) scheduled for January. The Japanese Yen is anticipated to weaken significantly, with a projected decline of over 10% against the US Dollar throughout 2024, marking its fourth consecutive year of depreciation.
As of Tuesday, the USD/JPY was trading around 156.20, continuing its bearish trajectory for the third straight session. This movement reflects the ongoing assessment of market sentiment following the recent release of Japan’s Consumer Price Index (CPI) inflation data, which has sparked discussions regarding the BoJ’s monetary policy adjustments.
In December, Japan’s Tokyo CPI inflation recorded a year-over-year increase of 3.0%, a rise from November’s 2.6%. Notably, the CPI excluding fresh food and energy also climbed to 2.4% YoY, slightly above the previous month but just below expectations. Such inflation figures have raised speculation about the central bank’s willingness to modify interest rates to combat rising prices.
Furthermore, the USD/JPY faces additional pressure as the US Dollar shows signs of weakness due to declining Treasury yields. The US Dollar Index remained steady around 108.00, reflecting this softness. Recent data revealed a decline of approximately 2% in US Treasury bond yields on Monday, with 2-year and 10-year yields recorded at 4.24% and 4.53% respectively.
Despite the challenges facing the US Dollar, downside risks appear limited. The Federal Reserve is likely to adopt a more cautious stance regarding any potential rate cuts in the near future, particularly as it considers economic strategies amid uncertainties stemming from upcoming changes in administration leadership. This evolving monetary policy landscape positions both currencies in a complex and potentially volatile environment as 2024 approaches.
