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Japanese Yen remains on the front foot against USD amid divergent BoJ-Fed expectations

  • The Japanese Yen gains some positive traction following an Asian session downtick. 
  • Bets for more interest rate hikes by the BoJ continue to act as a tailwind for the JPY.
  • The divergent BoJ-Fed expectations further contribute to the USD/JPY pair's slide.

The Japanese Yen (JPY) builds on steady intraday ascent heading into the European session on Wednesday, which, along with the emergence of fresh US Dollar (USD) selling, drags the USD/JPY pair to the 151.70-151.65 area in the last hour. Investors now seem convinced that the Bank of Japan (BoJ) will hike interest rates further amid signs of broadening inflation in Japan, which continues to underpin the JPY. 

Apart from this, the narrowing of the rate differential between Japan and other countries contributes to driving flows towards the lower-yielding JPY. The USD, on the other hand, is pressured by expectations for additional rate cuts by the Federal Reserve (Fed). This suggests that the path of least resistance for the USD/JPY pair is to the downside, though traders might opt to wait for the release of the FOMC meeting minutes. 

Japanese Yen remains well supported by bets that BoJ will hike interest rates further

  • Bank of Japan Governor Kazuo Ueda and Deputy Governor Himino recently signaled the possibility of another rate hike if the economy and prices align with the projections. 
  • Adding to this, BoJ Board Member Hajime Takata said on Wednesday that the central bank must gradually shift policy to avoid upside price risks from materializing.
  • Moreover, Japan's upbeat Q4 Gross Domestic Product (GDP) print on Monday boosted bets for further policy tightening by the BoJ amid signs of persistently high inflation. 
  • The International Monetary Fund estimates Japan's neutral rate to be between 1% and 2%, and anticipates the BoJ to raise rates to around the mid-point of 1.5% by the end of 2027.
  • The yield on the benchmark 10-year Japanese government bond reached levels not seen since 2010 earlier this week, which should continue to underpin the Japanese Yen.
  • Officials from the US and Russia held a crucial meeting in Saudi Arabia to discuss ways to halt the almost three-year-old war in Ukraine and also agreed to hold more talks.
  • Furthermore, a delay in the implementation of US President Donald Trump's reciprocal tariffs remains supportive of a positive risk tone and undermines the safe-haven JPY. 
  • Market participants now look forward to the release of minutes of the Federal Reserve's latest policy meeting in January for fresh cues about the future interest rate-cut path.

USD/JPY seems vulnerable to slide further; 151.00 round figure holds the key for bullish traders

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From a technical perspective, any subsequent move up is more likely to face stiff resistance near the 200-day Simple Moving Average (SMA), currently pegged near the 152.65 region. This is followed by the 153.00 mark and the 100-day SMA barrier, around the 153.30-153.35 zone, which if cleared decisively should pave the way for additional gains. The USD/JPY pair might then accelerate the positive move towards reclaiming the 154.00 mark en route to the 154.45-154.50 supply zone, last week's swing high, around the 154.75-154.80 region, and the 155.00 psychological mark. 

On the flip side, weakness below the 151.75 area, or the Asian session trough, could extend towards the overnight swing low, around the 151.25 region. Some follow-through selling, leading to a subsequent breakdown below the 151.00 mark, will be seen as a fresh trigger for bearish traders. The USD/JPY pair might then accelerate the fall towards the 150.60 intermediate support before eventually dropping to the 150.00 psychological mark. The downward trajectory could extend further towards the 149.60-149.55 region en route to the 149.00 mark and the December 2024 low, around the 148.65 region.

Economic Indicator

FOMC Minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

Read more.

Next release: Wed Feb 19, 2025 19:00

Frequency: Irregular

Consensus: -

Previous: -

Source: Federal Reserve

Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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