The Japanese Yen is facing increased selling pressure as investors grapple with uncertainties surrounding the Bank of Japan’s (BoJ) potential interest rate hikes. Despite an initial three-day rally against the US Dollar, the Yen saw renewed bearish sentiment during the Asian trading session on Tuesday. This shift is largely influenced by the lack of clarity regarding the timing of any future rate adjustments by the BoJ. Additionally, reports suggesting a measured approach toward implementing tariffs by the economic advisors of US President-elect Donald Trump have contributed to a risk-on sentiment, further weakening the Yen.
The changing dynamics in US monetary policy, particularly a hawkish stance from the Federal Reserve, have put upward pressure on US bond yields. This development diminishes hopes for a narrowing of the interest rate differential between the US and Japan. Consequently, this situation supports the USD/JPY pair, stalling its recent downward trend from a multi-month high reached last Friday. While fears regarding aggressive trade tariffs have eased, US Treasury yields have slightly retreated, keeping the Dollar in check ahead of important inflation data due for release.
The uncertainty surrounding the BoJ’s next moves remains a significant factor in Yen trading. Officials have indicated a cautious approach towards rate hikes, closely monitoring both domestic and international economic risks. Some analysts expect that the BoJ may wait until April to assess whether wage growth will sustain during the spring negotiations before taking any action on interest rates. Such hesitance, combined with expectations for gradual tariff increases, maintains pressure on the Yen.
From a technical standpoint, the USD/JPY pair has demonstrated resilience around the 157.00 level, suggesting potential for further upward movement. Should it break past the 158.00 level, traders may see an acceleration towards the 158.55 level, with eyes on reaching the multi-month peak of around 158.85 – 158.90. However, should prices fail to maintain momentum, support may be observed near the 157.00 – 156.90 region. A decisive breach below 156.00 could indicate a shift towards a bearish outlook for the pair.
