- The Japanese Yen faces some selling pressure on Tuesday, but the move lacks momentum.
- Increased speculation of another Bank of Japan (BoJ) rate hike in December helps contain JPY losses.
- Geopolitical risks, Trump’s tariff threats, and subdued U.S. bond yields continue to support JPY bulls.
The Japanese Yen (JPY) softens against the U.S. Dollar (USD) during Tuesday’s Asian session, lifting the USD/JPY pair away from Monday’s low—its weakest point since October 16. However, growing speculation of a December rate hike by the Bank of Japan (BoJ) should cap any significant JPY depreciation. Additionally, persistent geopolitical tensions and U.S. President-elect Donald Trump’s looming trade tariff threats continue to support the safe-haven appeal of the JPY.
Meanwhile, the recent decline in U.S. Treasury yields has failed to sustain the USD’s overnight recovery from a multi-month low, offering further support to the lower-yielding Yen. As traders await more clarity on the Federal Reserve’s (Fed) rate-cut trajectory, this week’s critical U.S. economic data will likely set the tone for the USD/JPY pair’s next move.
Yen Bulls Hold Firm Amid BoJ Rate Hike Expectations
- Inflation Momentum: Tokyo’s November Consumer Price Index (CPI) report suggests accelerating inflation, fueling expectations for a BoJ rate hike in December.
- BoJ Governor’s Stance: BoJ Governor Kazuo Ueda signaled readiness to adjust monetary easing when confident that inflation is moving towards the 2% target.
- Geopolitical Risks: Tensions rise as Russia fires at least 60 North Korean missiles into Ukraine, with North Korea pledging unwavering support for Russia.
- Trump’s Tariff Threats: Trump’s promise of heavy tariffs on BRICS nations and major U.S. trading partners has rekindled fears of a global trade war.
- Inflation Concerns: Markets worry that Trump’s policies could reignite inflation, potentially halting the Fed’s rate cuts or even prompting future hikes.
- Economic Data: The ISM Manufacturing PMI rose to 48.4 in November, surpassing expectations of 47.5, amid optimism for pro-business Trump policies.
- Fed Rate-Cut Odds: CME Group’s FedWatch Tool shows a 75% probability of a 25-basis-point Fed rate cut this month, weighing on the USD.
- Narrowing Yield Gap: Falling U.S. Treasury yields have reduced the U.S.-Japan yield differential, supporting the JPY.
- Upcoming Data: Traders are closely watching upcoming U.S. macroeconomic releases for clues on the Fed’s future policy direction, which will influence USD/JPY movements.
USD/JPY Technical Outlook: Downside Risks Persist
From a technical standpoint, last week’s breach of the 38.2% Fibonacci retracement level from the September-November rally signals a bearish shift. Daily chart oscillators remain deeply negative but not yet oversold, indicating further downside potential.
Immediate support lies at the 100-day Simple Moving Average (SMA) near 149.00. A decisive break below this level could open the door to 148.20 (50% retracement), followed by 148.00. Further selling may expose the 61.8% retracement near 147.00, with interim support around 147.35.
On the upside, a move above the 150.00 psychological barrier faces resistance at 150.75, followed by 151.00. A sustained break above 151.00 could trigger a short-covering rally toward 151.65 and 152.00, where the 200-day SMA resides. Clearing this level would suggest the recent correction from multi-month highs has concluded, shifting the near-term bias back to the bulls.
