The Japanese Yen has weakened considerably against major currencies, most notably the US Dollar, following the Bank of Japan’s cautious stance on future interest rate increases. Consequently, the USD/JPY exchange rate is currently testing resistance around 157.20, close to a five-month peak. This Yen weakness is occurring while the US Dollar remains strong, boosted by factors including the ongoing Trump trade war, a robust US economy, and the Federal Reserve’s decision to pause further rate cuts, pushing the greenback to a two-year high.
BOJ Cautious on Rate Hikes
Bank of Japan Governor Kazuo Ueda recently refrained from signaling a potential interest rate hike in early 2025, emphasizing the importance of closely monitoring economic risks. His comments contributed to a decline in the Yen. Ueda stated, “The timing and pace of adjusting the degree of monetary easing will depend on developments in economic activity and prices as well as financial conditions going forward.” He further noted, “The Bank must carefully consider various domestic and international risk factors and assess how they may impact Japan’s economic outlook, price stability, and the likelihood of achieving its goals.”
Governor Kazuo Ueda suggested that the Bank of Japan might delay raising interest rates, surprising investors who had anticipated a possible hike in January 2025, particularly if no action was taken at the December 2024 meeting. The Bank of Japan previously raised rates in March, marking its first hike in 17 years. Despite this cautious stance, some economists and policymakers believe Japan is ready for another increase. Inflation has stayed at or above the Bank’s target for over two and a half years, while the economy has shown steady signs of moderate recovery.
Japanese Forex Intervention Timing
The persistent weakness of the Japanese Yen continues to prompt Japanese authorities to consider intervention in the foreign exchange market to prevent further declines, which could negatively impact the economy. However, officials are treading carefully this time, mindful of former President Trump’s stance against market interventions, regardless of exchange rate fluctuations. Both the Japanese Ministry of Finance and the Bank of Japan have recently issued warnings about unilateral and speculative currency movements.
Raising interest rates could help ease some of the pressure on the Yen, which is nearing levels that previously triggered government intervention. So far in 2024, Tokyo has spent nearly $100 billion in efforts to stabilize the currency.
Actionable Trading Tips
If the US dollar continues its current upward trend against the Japanese yen, it is likely to approach the 160.00 level.
USD/JPY Analysis: Today’s Technical Outlook & Expectations
We maintain a bullish technical outlook for USD/JPY, anticipating a push towards the 160.00 resistance level, potentially leading to overbought conditions on the RSI and Stochastic. Conversely, a break below 153.85 could signal a new downtrend. We favor buying USD/JPY on dips, using stop-loss and take-profit orders for risk management. Expect range-bound trading until after the Christmas holidays.
