The Japanese Yen is currently experiencing challenges in building on previous recovery gains against the US Dollar, as fresh selling pressure emerged during the Asian trading session on Wednesday. Recent data has revealed an unexpected improvement in Japan’s Trade Balance for November, attributed primarily to a significant rise in exports. However, a decline in imports suggested a lack of robust domestic demand. These developments, coupled with uncertainty surrounding US economic policies, particularly those related to tariffs, have led to expectations that the Bank of Japan will maintain current interest rates during its upcoming meeting, further weighing on the Yen.
In the United States, the outlook is shaped by the anticipation of a less accommodative Federal Reserve, alongside concerns that potential government borrowing linked to new policies could drive inflation higher. This environment supports increased yields on US Treasury bonds, which can negatively impact lower-yielding currencies like the Yen. Moreover, subdued risk sentiment has capped the Yen’s losses, leading traders to adopt a cautious approach ahead of significant central bank announcements – with the Fed’s decision due today and the Bank of Japan’s update slated for Thursday.
New figures from Japan’s Ministry of Finance indicate a notable improvement in the nation’s trade deficit, narrowing from ¥462.1 billion in October to ¥117.6 billion in November, driven by a robust 3.8% growth in exports. This positive trend was balanced by a similar decline in imports. With market participants focusing on potential changes in monetary policy, the Yen remains under pressure.
The yield on the benchmark 10-year US government bond surged following strong retail sales data from the US, indicating solid consumer spending. Though overall sales growth was slightly below expectations, the general trend of economic resilience has implications for Federal Reserve policy, with investors eager to assess updated economic projections and statements from Fed officials for insights into future interest rate paths.
As the market prepares for the Bank of Japan’s policy decisions, attention is likely to center on potential impacts on the USD/JPY exchange rate. Technically, recent buying activity, combined with a breakout above the significant 200-day Simple Moving Average, is supportive of a bullish trend. However, any upward momentum may encounter resistance near the 154.00 level and beyond, while downside risks are safeguarded by key support near 153.15. If this support fails, further declines could lead the pair towards critical support zones around 152.15 and lower levels.
