Japanese yen gains amid BoJ hike bets

Hannah Bietz
Yen Gains
Yen Gains

The Japanese Yen gains positive traction for the second straight day amid bets for a Bank of Japan rate hike. This has led to a risk-on mood that supports the JPY while helping USD/JPY to rebound from a multi-week low. Signs of broadening inflationary pressures in Japan increase the prospects for further policy tightening by the BoJ.

This has pushed yields on Japanese Government Bonds to multi-year highs. In contrast, US Treasury bond yields retreated sharply in response to benign US inflation data, narrowing the US-Japan yield differential and underpinning the JPY. The yield on the benchmark 10-year Japanese government bond advanced to its highest level since 2011 amid these expectations.

Bank of Japan Governor Kazuo Ueda reiterated that the central bank will debate whether to hike rates next week and will raise the policy rate this year if economic and price conditions continue to improve. This echoed Deputy Governor Ryozo Himino’s earlier comments and increased bets for an interest rate hike at the January 23-24 meeting. The US Bureau of Labor Statistics reported that the headline Consumer Price Index 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%.

BoJ rate hike speculation strengthens yen

The US Dollar hit a one-week low after the release of these inflation figures, contributing to the USD/JPY pair’s decline.

Richmond Fed President Tom Barkin indicated that the fresh inflation data showed progress towards the central bank’s 2% goal but stated that rates should remain restrictive. Easing fears about US President-elect Donald Trump’s potential disruptive trade tariffs continue to support a risk-on mood, reducing demand for traditional safe-haven assets like the JPY. Traders are looking to US macro data for fresh impetus, although the focus remains on the upcoming BoJ policy meeting.

The USD/JPY pair remains vulnerable while below the 156.35-156.40 support-turned-resistance. Any further slide is likely to find support near the 155.00 psychological mark, with potential for a drop to the 154.55-154.50 region. If this support is convincingly broken, it could trigger further bearish sentiment and a deeper decline.

On the flip side, resistance is expected near the 156.00 mark, with subsequent hurdles at 156.35-156.45 and 156.75. Follow-through buying could shift the bias back in favor of bullish traders, lifting the pair to the 157.00 mark and potentially extending towards the 158.00 round figure and challenging the multi-month peak around the 158.85-158.90 region. Both the Japanese and US economies remain the focal points for investors, especially with anticipated policy moves by the BoJ and ongoing scrutiny of US inflation data.

The current fundamental backdrop suggests that JPY bulls may continue to have the upper hand as traders await further developments.

Hannah is a news contributor to SelfEmployed. She writes on current events, trending topics, and tips for our entrepreneurial audience.