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Japanese Yen sticks to modest intraday gains against USD amid BoJ rate hike bets

  • The Japanese Yen strengthens in reaction to the upbeat Core Machinery Orders data.
  • Firming expectations for an additional BoJ rate hike this week also underpin the JPY.
  • A modest USD downtick further contributes to the USD/JPY pair’s intraday decline. 

The Japanese Yen (JPY) trims a part of intraday gains against its American counterpart, though manages to retain a positive bias and remains close to a multi-week top touched on Friday. An increase in Japan’s Core Machinery Orders for the second straight month signaled a further recovery in capital expenditure. Adding to this, bets that the Bank of Japan (BoJ) will hike interest rates at its policy meeting later this week underpin the JPY. This, along with a modest US Dollar (USD) weakness, fails to assist the USD/JPY pair to build on Friday’s bounce from sub-155.00 levels. 

That said, a generally positive risk tone and uncertainties over the incoming US President Donald Trump’s trade policies keep a lid on any meaningful appreciating move for the safe-haven JPY. Traders also seem reluctant to place aggressive directional bets and opt to move to the sidelines ahead of Trump’s inaugural address later this Monday. The focus will then shift to the highly-anticipated two-day BoJ policy meeting starting Thursday. The outcome will play a key role in influencing the JPY price dynamics and determining the near-term trajectory for the USD/JPY pair. 

Japanese Yen bulls refrain from placing fresh bets ahead of Trump’s inaugural address and BoJ meeting this week

  • Government data released earlier this Monday showed that Japan’s Core Machinery Orders increased by 3.4% month-on-month in November 2024, marking the second consecutive month of increase and the strongest growth in nine months.
  • This comes on top of the broadening inflation and strong wage growth in Japan, which, along with hawkish remarks from Bank of Japan officials, lifted bets for another rate hike later this week and offered some support to the Japanese Yen.
  • BoJ Deputy Governor Ryozo Himino said last week that a rate hike will be discussed at the January 23-24 meeting as prospects of sustained wage gains heighten and the US policy outlook under President-elect Donald Trump becomes clearer.
  • Moreover, BoJ Governor Kazuo Ueda said last week that there was a lot of positive talk on the wage outlook and reiterated that the central bank would raise the policy rate further this year if economic and price conditions continue to improve.
  • Adding to this, a BoJ report released earlier this month showed that wage hikes are spreading to firms of all sizes and sectors in Japan, suggesting that conditions for a near-term interest rate hike were continuing to fall into place.
  • The JPY bulls, however, might refrain from placing aggressive bets and opt to move to the sidelines ahead of US President-elect Donald Trump’s inaugural address later this Monday and a two-day BoJ meeting starting Thursday.
  • Data released last week suggested that the underlying inflation in the US slowed last month and fueled speculations that the Federal Reserve may not necessarily exclude the possibility of cutting interest rates further in 2025.
  • Furthermore, Fed Governor Christopher Waller said last Thursday that inflation is likely to continue to ease and that as many as three or four quarter-percentage-point rate reductions could still be possible by the end of this year.
  • The US Commerce Department’s Census Bureau reported on Friday that Housing Starts rose 3.3% in December, to a seasonally adjusted annual rate of 1.50 million units, marking the highest level since February 2024.
  • This, to a larger extent, offsets a slight disappointment from the latest report on Building Permits, which registered a sudden drop of 0.7% in December as compared to the 5.2% strong growth registered in the previous month.
  • The yield on the benchmark 10-year US government bond rebounded after touching a two-week low on Friday, which assisted the US Dollar to snap a four-day losing streak and offered support to the USD/JPY pair.

USD/JPY technical setup seems tilted firmly in favor of bears; break below ascending channel support awaited

From a technical perspective, Friday’s bounce from support marked by the lower boundary of a multi-month-old ascending channel falters near the 156.55-156.60 region. The said area should now act as an immediate hurdle, above which a fresh bout of a short-covering could allow the USD/JPY pair to reclaim the 157.00 round figure. The subsequent move up could extend further towards the 157.40-157.45 intermediate barrier en route to the 158.00 mark and the 158.85 region, or a multi-month top touched on January 10.

On the flip side, the ascending channel support, currently pegged near the 155.25 area, might continue to protect the immediate downside ahead of the 155.00 psychological mark. A sustained break and acceptance below the latter will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair towards the 154.60-154.55 region. Spot prices could extend the downward trajectory further towards the 154.00 mark en route to the next relevant support near the 153.35-153.30 horizontal zone.

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.