The USD/JPY pair ended the week at 157.80, reflecting persistent weakness in the yen against the robust US dollar. The currency pair has been underpinned by a wide interest rate gap, with the Federal Reserve holding rates steady while the BOJ has kept its ultra-loose policy intact.
A stronger US dollar has also contributed to the yen’s decline, supported by the US Dollar Index (USDX), which held firm at 108.11, close to a two-year high. The dollar’s resilience has been bolstered by elevated US Treasury yields, with the 10-year yield at 4.57%, the highest since early May.
See also: US Dollar Climbs Near Two-Year High
Traders remain cautious as the yen approaches 160 per dollar, a level that could trigger Tokyo’s intervention to stabilise the currency.
Picture: USDJPY retreats near 157.71 as momentum cools, eyeing support at 157.65 and resistance at 158.08, as seen on the VT Markets app.
The charts show a slight pullback for the USDJPY pair, closing at 157.717 after testing a session high of 158.081. Signs indicate its momentum weakening, with moving averages flattening and the MACD histogram shrinking as the session progressed.
Price action remains range-bound, holding above key support at 157.65 while struggling to break past 158.08 resistance, reflecting cautious sentiment amid mixed monetary policy signals from the Bank of Japan and the Federal Reserve.
The BOJ kept rates unchanged in December but signalled a potential shift soon. The summary of opinions from the December meeting released on Friday suggested the possibility of a January rate hike.
A move to raise rates would narrow the interest rate differential with the US and offer some relief to the yen.
However, the impact of any BOJ rate hike is likely to be modest unless accompanied by a clear roadmap for tightening monetary policy.
Market participants remain sceptical about the BOJ’s ability to counteract the structural drivers of yen weakness, particularly as the Fed remains cautious in cutting rates.
The Federal Reserve’s December decision to lower rates by 25 basis points while projecting only two cuts for 2025 signals a slower pace of easing than markets had anticipated. This has limited downward pressure on US Treasury yields, reinforcing the dollar’s appeal.
Traders are now pricing at 37 basis points of easing for 2025, with the first rate cut expected by June.
Any signs of stronger-than-expected US economic data or persistent inflation could delay these cuts further, keeping the USD/JPY pair elevated.
Official partners:
