Japanese Yen struggles near multi-week low amid reduced BoJ rate hike bets

• The Japanese Yen drops to a fresh two-week trough against the USD on Friday.
• Fading hopes for a December BoJ rate hike keep the JPY bulls on the defensive.
• Elevated US bond yields underpin the USD and weigh on the lower-yielding JPY.

The Japanese Yen (JPY) remains on the defensive against its American counterpart, lifting the USD/JPY pair closer to the 153.00 neighborhood, or a fresh monthly peak during the Asian session on Friday. Recent media reports suggested that the Bank of Japan (BoJ) will not raise interest rates at its upcoming policy meeting next week, which, in turn, continues to undermine the JPY. Adding to this, expectations for a less dovish Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and further weigh on the lower-yielding JPY.

Meanwhile, the BoJ’s quarterly Tankan survey released earlier today showed business confidence in Japan’s large manufacturers improved slightly in the fourth quarter of 2024. This goes well with the central bank’s plans to gradually raise interest rates and might hold back the JPY bears from placing aggressive bets. Furthermore, persistent geopolitical risks and concerns about US President-elect Donald Trump’s tariff plans should help limit losses for the safe-haven JPY ahead of next week’s key central bank event risks – the FOM and BoJ policy meetings. 

Japanese Yen continues to be weighed down by diminishing odds for a December BoJ rate hike

• The Bank of Japan’s quarterly Tankan survey showed on Friday that the headline index measuring big manufacturers’ business confidence rose to +14  during the September-December period, marking the highest reading since March 2022. Furthermore, firms expect inflation to rise 2.4% a year from now.
• Expectations that consumer prices in Japan will remain above the BoJ’s 2% target, along with a moderately expanding economy and a rise in wages by the fastest rate since November 1992, give the BoJ another reason to hike interest rates. That said, media reports suggested that the BoJ may skip a rate hike this month.
• Reuters, citing sources familiar with the Bank of Japan’s thinking, reported on Thursday that the central bank is leaning toward keeping interest rates steady next week. The report added that policymakers prefer to spend more time scrutinising overseas risks and clues on next year’s wage outlook.
• A Bloomberg report on Wednesday said that BoJ officials see little cost to waiting before raising interest rates while still being open to a hike next week depending on data and market developments. This, along with mixed signals from BoJ officials, adds to uncertainty over the December policy decision.
• BoJ Governor Kazuo Ueda recently said that the timing of the next rate hike was approaching. In contrast, BoJ’s dovish board member, Toyoaki Nakamura said that the central bank must move cautiously in raising rates. This continues to weigh on the Japanese Yen and lifts the USD/JPY pair to over a two-week high. 
• The US Bureau of Labor Statistics reported on Thursday that the headline Producer Price Index (PPI) rose 0.4% in November, from the previous month’s upwardly revised 0.3% gain. Moreover, the yearly rate accelerated from the 2.6% increase recorded in October to 3% during the reported month.
• The annual core PPI rose 0.2% in November and stood at 3.4% compared to the same time period last year, beating estimates. This comes on top of the US consumer inflation figures on Wednesday and signals that the progress in lowering inflation toward the Federal Reserve’s 2% target has stalled.
• This might force the Fed to adopt a more cautious stance and point to fewer rate cuts coming at a slower pace than previously anticipated. This remains supportive of a further rise in the US Treasury bond yields high, pushing the US Dollar to a fresh monthly peak and also weighing on the lower-yielding JPY. 
• The market attention now shifts to the key central bank event risks next week – the outcome of the highly-anticipated two-day FOMC monetary policy meeting and the crucial BoJ decision. In the meantime, traders might opt to move to the sidelines and refrain from placing aggressive directional bets.

USD/JPY seems poised to appreciate further; a move beyond the 152.70-152.80 confluence awaited

From a technical perspective, the lack of follow-through buying beyond the 152.70-152.80 confluence warrants some caution for bullish traders. The said area comprises the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the recent pullback from the multi-month high. Given that oscillators on daily/4-hour charts are holding in positive territory, a sustained strength beyond could lift the USD/JPY pair to the 153.00 mark en route to the 153.65 region, or the 61.8% Fibonacci retracement level. The momentum could extend further and allow spot prices to reclaim the 154.00 mark.

On the flip side, weakness below the 152.00 mark might continue to find some support near the 151.75 area or the 38.2% Fibo. level. The said area nears the overnight swing low and should now act as a key pivotal point. Some follow-through selling could make the USD/JPY pair vulnerable to weaken further below the 151.00 round figure, towards the 150.50 intermediate support before eventually dropping to the 150.00 psychological mark.