- The Japanese Yen regains some positive traction following the previous day's sharp decline.
- The USD bulls seem reluctant to place aggressive bets and opt to wait for the Fed decision.
- A positive risk tone might cap gains for the safe-haven JPY and lend support to USD/JPY.
The Japanese Yen (JPY) remains on the front foot against its American counterpart heading into the European session on Wednesday amid bets for more interest rate hikes by the Bank of Japan (BoJ). Furthermore, the recent decline in the US Treasury bond yields, led by the prospects for further easing by the Federal Reserve (Fed), resulted in the narrowing of the US-Japan yield differential and further benefits the lower-yielding JPY. Apart from this, the emergence of some US Dollar (USD) selling drags the USD/JPY pair to the 155.00 psychological mark.
That said, growing market concerns about US President Donald Trump's trade policies and a positive risk tone might hold back traders from placing aggressive bullish bets around the safe-haven JPY. Investors might also opt to move to the sidelines ahead of the key central bank event risk – the outcome of a two-day FOMC policy meeting. The Fed is scheduled to announce its decision later during the US session, which will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair.
Japanese Yen remains supported by BoJ rate hike bets as traders await FOMC policy deision
- The Japanese Yen retreated sharply on Tuesday, from a six-week high touched the previous day, following fresh tariff threats from US President Donald Trump.
- Trump said late on Monday that he plans to impose duties on imported computer chips, pharmaceuticals, and metals to push companies to boost domestic production.
- The US Dollar staged a solid recovery from over a one-month low amid speculations that Trump's protectionist policies could reignite inflationary pressures.
- The US Census Bureau reported on Tuesday that Durable Goods Orders declined 2.2% in December, compared to a 2% fall in November and a 0.8% rise expected.
- The Conference Board's (CB) Consumer Confidence Index dropped to 104.1 in January from 109.5 previous, while the Present Situation Index fell to 134.3.
- Minutes of the December Bank of Japan meeting released this Wednesday showed that members emphasized the need for cautious monetary policy adjustments.
- Meanwhile, investors are more confident that the BoJ will continue its move towards normalization and deliver additional interest rate hikes in 2025.
- Moreover, hopes that Japan's spring wage negotiations will result in strong hikes again this year, which should allow the BoJ to tighten its policy further.
- In contrast, market participants have been pricing in the possibility that the Federal Reserve will lower borrowing costs twice by the end of this year.
- Investors await the outcome of a two-day FOMC meeting, which will play a key role in driving the USD and provide a fresh impetus to the USD/JPY pair.
USD/JPY could accelerate the slide once the 155.00 psychological mark is broken decisively
This week's breakdown below a multi-month-old ascending channel favors bearish traders amid slightly negative oscillators on the daily chart. Hence, any subsequent move up beyond the 156.00 mark could be seen as a selling opportunity and remain capped near the 156.60-156.70 supply zone. Some follow-through buying, however, could trigger a short-covering rally and lift the USD/JPY pair beyond the 157.00 mark, towards the 157.45 hurdle. The momentum could extend further towards the 158.00 mark en route to the 158.85-158.90 region, or a multi-month top touched on January 10.
On the flip side, the 155.00 psychological mark now seems to protect the immediate downside ahead of the 154.55-154.50 horizontal zone and the 154.00 round figure. This is closely followed by the weekly swing low, around the 153.70 area touched Monday, below which the USD/JPY pair could accelerate the fall further towards the 153.30 support before eventually dropping to the 153.00 mark.
Economic Indicator
Fed Interest Rate Decision
The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Read more.Next release: Wed Jan 29, 2025 19:00
Frequency: Irregular
Consensus: 4.5%
Previous: 4.5%
Source: Federal Reserve
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