The Yen nears a six-month low, affected by the strong US Dollar

The USD/JPY pair remained near the 158.00 mark on Thursday, consolidating at levels last seen in mid-2024. Although the pair is no longer surging as it did earlier in the year, the fundamental preconditions for further growth persist.

The yen continues to face significant downward pressure due to the strength of the US dollar. The greenback is buoyed by hawkish signals from the US Federal Reserve, reinforcing expectations of a measured pace of rate cuts in 2025. The US dollar’s rally is further bolstered by renewed market concerns over tariff threats from US President-elect Donald Trump, adding to its safe-haven appeal.

Domestic data weighs on the Yen

Japan’s domestic economic landscape is also contributing to the yen’s weakness. Fresh data showed that real wages in Japan fell by 0.3% year-on-year in November, marking the fourth consecutive month of declines. This wage downturn reflects ongoing challenges in the labour market and erodes consumer spending power, which is critical for economic recovery.

Adding to these woes, consumer sentiment in Japan deteriorated further in December, highlighting public concerns about economic stability. These signals make the likelihood of an interest rate hike by the Bank of Japan (BoJ) increasingly remote. The BoJ has maintained an accommodative monetary policy stance for years, and this latest data reinforces its reticence to tighten monetary conditions.

Japan’s Finance Minister, Katsunobu Kato, reiterated this week the government’s readiness to intervene in currency markets should speculative, one-way moves in the yen persist. While such statements underline the government’s concerns about volatility, they have become a familiar refrain, offering little immediate support for the currency.

Since 4 December 2024, the yen has been in an active weakening phase, and there is little indication that this trend is nearing completion.

Technical analysis of USD/JPY

On the H4 chart, the USD/JPY pair has formed a broad consolidation range around the 157.33 level. This range is expanding upwards, with the market targeting the 158.63 level as its primary objective. After reaching this target, a corrective wave to the 156.00 level could materialise. The MACD indicator supports this outlook, with its signal line positioned above the zero mark and pointing sharply upwards, indicating sustained bullish momentum.

The H1 chart shows the USD/JPY market amid a growth wave targeting 158.63. A consolidation range is forming around the 157.33 level, with an intermediate target at 158.40 already being worked out through an upward breakout. A minor correction back to 157.33 (testing the level from above) is possible. Upon completing this correction, the pair is expected to resume its upward movement towards the 158.63 level, the primary target for the current wave.

The Stochastic oscillator confirms this scenario, with its signal line positioned above the 50 mark and pointing decisively upwards, indicating bullish momentum remains intact.