The Japanese Yen (JPY) made a modest recovery on Friday, trimming some losses after hitting a two-week low against the US Dollar (USD). The currency found support from a slight deterioration in global risk sentiment, bolstered by geopolitical tensions and trade war fears, which triggered some haven flows into the Yen. However, the USD consolidated its weekly gains, further capping any significant appreciation in the USD/JPY pair beyond the 153.00 threshold.
Despite the Yen’s recovery, the growing market expectation that the Bank of Japan (BoJ) will not raise interest rates at its upcoming meeting next week could limit bullish momentum for the JPY. Moreover, higher US Treasury yields, fueled by speculation that the Federal Reserve (Fed) will adopt a cautious approach to rate cuts, present additional headwinds for the lower-yielding Yen. As a result, investors may remain on the sidelines, awaiting key central bank decisions in the coming week.
The BoJ’s quarterly Tankan survey revealed on Friday that business confidence among large manufacturers increased to +14 during the September-December period, the highest level since March 2022. Firms also forecast inflation to rise by 2.4% in the year ahead. While expectations of sustained inflation and moderate economic growth in Japan could justify a rate hike, media reports suggest the BoJ is likely to hold off on increasing rates next week. Sources cited by Reuters indicate that the BoJ prefers to carefully assess external risks and wage trends before making any policy changes.
BoJ officials have given mixed signals about the timing of a rate hike. Governor Kazuo Ueda recently stated that the next rate increase is approaching, while dovish board member Toyoaki Nakamura has urged caution in tightening policy. This uncertainty has put pressure on the Yen, allowing the USD/JPY pair to rise to a two-week high.
US economic data also supports the USD. The Producer Price Index (PPI) for November rose 0.4%, surpassing expectations and signaling that inflationary pressures remain persistent. The core PPI, which excludes food and energy prices, increased by 3.4% year-over-year, further dampening hopes of rapid inflation reduction toward the Fed’s 2% target. These figures suggest that the Fed may slow the pace of rate cuts, which in turn supports higher US Treasury yields and strengthens the USD.
Market focus is now shifting to the upcoming Federal Open Market Committee (FOMC) meeting and the BoJ’s policy decision next week. Traders may remain cautious ahead of these key events, with limited appetite for aggressive directional bets.
From a technical standpoint, the USD/JPY pair faces resistance near the 152.70-152.80 range, where the 200-period Simple Moving Average (SMA) and the 50% Fibonacci retracement level converge. If the pair breaks above this area, it could target the 153.00 mark, followed by 153.65. Conversely, any weakness below the 152.00 level may find support around 151.75, with further declines potentially testing the 151.00 and 150.50 levels.
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