Japanese Yen trims a part of strong intraday gains; USD/JPY bounces off multi-week low
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Haresh Menghani
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16 Jan @ 02:52 (GMT+0)

Japanese Yen trims a part of strong intraday gains; USD/JPY bounces off multi-week low

  • The Japanese Yen gains positive traction for the second straight day amid BoJ rate hike bets. 
  • The narrowing of the US-Japan yield differential provides an additional boost to the JPY. 
  • The risk-on mood caps the JPY. A modest USD uptick lends support to the USD/JPY pair. 

The Japanese Yen (JPY) retains its bullish bias through the Asian session on Thursday and climbs to a four-week high against its American counterpart amid reviving bets for a Bank of Japan (BoJ) rate hike next week. The expectations were reaffirmed by the BoJ Governor Kazuo Ueda's hawkish comments, pushing yields on Japanese Government Bonds (JGBs) to multi-year highs. In contrast, the US Treasury bond yields retreated sharply on Wednesday in reaction to benign US inflation data. The resultant narrowing of the US-Japan yield-differential is seen as another factor undermining the JPY. 

Meanwhile, rising bets that the Federal Reserve (Fed) could cut interest rates twice this year, along with easing fears about US President-elect Donald Trump's disruptive trade tariffs, remain supportive of the risk-on mood. This, in turn, caps gains for the safe-haven JPY, which, along with a modest US Dollar (USD) uptick, assists the USD/JPY pair to rebound over 50 pips from the daily through, around the 155.20 area. Trades now look forward to the US economic docket – featuring the release of monthly Retail Sales figures and the usual Weekly Initial Jobless Claims data – for short-term opportunities. 

Japanese Yen bulls retain control amid reviving bets for a BoJ rate hike next week

  • Bank of Japan Governor Kazuo Ueda reiterated that the central bank will debate whether to hike rates next week and will raise policy rate this year if economic, price conditions continue to improve. 
  • Ueda’s remarks echoed Deputy Governor Ryozo Himino’s comments earlier this and lift bets for an interest rate hike at the end of the January 23-24 meeting, providing a strong boost to the Japanese Yen. 
  • The yield on the benchmark 10-year Japanese government bond advanced to its highest level since 2011 amid the prospects for further monetary policy tightening by the BoJ. 
  • In contrast, the US Treasury bond yields fell on Wednesday following the release of the US Consumer Price Index (CPI), which eased fears that inflation was accelerating.
  • The US Bureau of Labor Statistics (BLS) reported that the headline CPI rose 0.4% in December and the yearly rate accelerated to 2.9% from 2.7% in the previous month. 
  • The core gauge, which excludes volatile food and energy prices, rose 3.2% on a yearly basis as compared to the 3.3% increase recorded in November and expectations. 
  • The US Dollar dived to a one-week low following the release of the latest US consumer inflation figures and contributed to the USD/JPY pair's decline on Wednesday. 
  • Richmond Fed President Tom Barkin said that fresh inflation data show progress on lowering inflation to the central bank's 2% goal, but added that rates should remain restrictive.
  • Against the backdrop of easing fears about US President-elect Donald Trump's disruptive trade tariffs, softer US inflation data remains supportive of the upbeat market mood.
  • Traders look to the US macro data for a fresh impetus later during the North American session, though the focus will remain glued to the upcoming BoJ policy meeting.

USD/JPY might struggle to capitalize on intraday recovery beyond the 156.00 mark

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Any further slide is likely to find some support near the 155.00 psychological mark, below which the USD/JPY pair could slide to the 154.55-154.50 region. The latter represents the lower boundary of a four-month-old upward-sloping channel and should act as a key pivotal point. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent retracement slide from a multi-month peak touched last Friday. Spot prices might then weaken further below the 154.00 mark and test the next relevant support near the 153.40-153.35 horizontal zone. 

On the flip side, any attempted recovery might now confront resistance near the 156.00 mark ahead of the 156.35-156.45 region and the 156.75 area. Some follow-through buying, leading to a subsequent strength beyond the 157.00 mark, might shift the bias back in favor of bullish traders and lift the USD/JPY pair to the 155.55-155.60 intermediate hurdle en route to the 158.00 round figure. The momentum could extend further towards challenging the multi-month peak, around the 158.85-158.90 region.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.