The Japanese Yen (JPY) is retreating from its early-week bullish opening against the US Dollar (USD), with the USD/JPY pair trading near the upper bounds of its daily range during the early European session on Monday. Despite Bank of Japan (BoJ) Governor Kazuo Ueda suggesting the possibility of a December rate hike, political uncertainty in Japan appears to cast doubts on further monetary tightening, limiting the yen’s safe-haven appeal.
Political Uncertainty Clouds BoJ Outlook
Governor Ueda’s hawkish remarks and Japan’s stronger consumer inflation data have not quelled market skepticism, as traders anticipate that Japan’s political turbulence could hinder the BoJ’s ability to tighten policy. This sentiment, combined with a broader risk-on environment, has weighed on the yen, providing upward momentum for the USD/JPY pair.
US Dollar Bolstered by Policy Optimism and Economic Data
Meanwhile, the US Dollar is supported by optimism surrounding President-elect Donald Trump’s proposed pro-business policies, which are expected to ignite inflationary pressures. These expectations, paired with a sharp drop in US Treasury yields and fears of intervention, have tempered bearish sentiment against the JPY. Nonetheless, traders remain cautious, awaiting stronger buying signals before committing to further upside for the USD/JPY pair.
Friday’s robust economic data bolstered the dollar’s appeal. The flash US Purchasing Managers’ Index (PMI) from S&P Global revealed a Composite PMI of 55.3, marking its highest level since April 2022. This indicates accelerating economic growth in the fourth quarter, reinforcing confidence in a potential rate hold by the Federal Reserve at its December meeting.
Technical Analysis: Key Levels for USD/JPY
From a technical standpoint, the USD/JPY pair faces support near 153.30-153.25, followed by the psychological 153.00 level. A decisive break below these levels could trigger a deeper slide toward mid-152.00s, with the 200-day Simple Moving Average (SMA) near 152.00 as the next major support.
Conversely, resistance is observed at the 154.00 mark, followed by 154.40. A sustained move above 155.00 could push the pair towards the 155.40-155.50 zone, with further gains potentially retesting the multi-month high of 156.75 recorded on November 15.
Global Factors to Watch
The risk-on sentiment is further fueled by reports of a nearing ceasefire between Israel and Hezbollah, reducing geopolitical tensions. Domestically, focus shifts to the US Personal Consumption Expenditures (PCE) Price Index data due this week, which could provide critical insights into the Federal Reserve’s monetary policy trajectory.
As traders balance uncertainties in Japan with robust US data and policy optimism, the USD/JPY pair remains poised for volatility, with key economic indicators likely to steer sentiment in the coming days.
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