The Japanese Yen has experienced a slight dip, retracting some of its recent gains against the US Dollar. Despite this minor setback, growing expectations for a rate hike from the Bank of Japan (BoJ) in the near future could help mitigate further depreciation of the Yen. Analysts believe that the prospect of increased rates, particularly after recent statements from BoJ leadership, will provide support for the currency.
On Friday, the Yen attracted selling interest after reaching its highest value against the Dollar in nearly a month during the Asian trading session. However, with escalating speculation around an upcoming BoJ interest rate increase, any substantive weakening of the Yen seems improbable. Factors such as a cautious risk appetite in the market also favor the Yen’s performance.
Meanwhile, inflation trends in the United States indicate that the Federal Reserve may consider lowering interest rates soon. Recent declines in US Treasury yields, coupled with a shrinking yield gap between US and Japanese government bonds, may bolster the Yen further. The Fed’s dovish outlook keeps the Dollar under pressure and should limit any recovery attempts for the USD/JPY pair.
Market sentiment indicates a significant likelihood — approximately 79% — of a 25-basis-point rate increase from the BoJ at the upcoming late January meeting. This expectation is backed by economic data, such as persistent producer price increases in Japan, which suggest underlying inflation. In contrast, the US is showing signs of easing inflation pressures, as indicated by lower readings in the Producer Price Index and Consumer Price Index.
From a technical standpoint, should USD/JPY break and settle below the key psychological level of 155.00, it may descend towards the 154.60-154.55 range. Failure to maintain upward momentum could trigger further declines to around 154.00, and possibly down to the 153.30 – 153.35 support zone. Conversely, should the Dollar attempt a recovery, it may face resistance at around 156.00, with additional hurdles beyond that point potentially limiting upward move.
