The Japanese Yen is currently struggling against the US Dollar, hovering near a multi-month low. This ongoing weakness can be attributed to the Bank of Japan’s (BoJ) dovish monetary stance and a favorable climate in equity markets, which diminishes the appeal of the Yen as a safe-haven asset. The Federal Reserve’s hawkish perspective for 2025 also provides support for the USD/JPY exchange rate.
The Yen has shown continued underperformance against the Dollar, marking the second consecutive day of decline. Last week, the BoJ hinted at a prolonged period before potential rate hikes, while the Federal Reserve indicated a desire to slow down its monetary easing strategy next year. This shift creates a more stable outlook for the interest rate differential between the US and Japan, contributing further to the Yen’s weakening.
Moreover, the overall positive sentiment in equity markets further detracts from demand for the Yen, which remained largely unchanged following the release of the BoJ’s October meeting minutes. The minutes pointed to the possibility of gradual rate hikes if inflation aligns with expectations, suggesting a potential move toward 1.0% by the end of fiscal 2025. However, uncertainties around domestic and global economic conditions prompt a cautionary approach to any significant policy shifts.
Currently, market participants appear to be betting against a rate increase at the BoJ’s looming monetary policy meeting in January, with expectations now leaning towards March. The shift in sentiment surrounding the Federal Reserve’s monetary policy has resulted in a spike in US Treasury yields, with the 10-year bond yield reaching its highest point since May. Meanwhile, the US Dollar is close to hitting a two-year high, remaining largely unaffected by a recent dip in the US Consumer Confidence index.
From a technical standpoint, the recent high near 158.00 could serve as a crucial resistance level. Should the USD/JPY pair maintain strength beyond this level, it may pave the way for further gains toward 158.45 and eventually 159.00. Conversely, a decline below 157.00 may encounter support around 156.65. A continued fall below this level could signal a buying opportunity around the 155.50 area, with the 155.00 level acting as a significant support base for the Yen.
