Japanese Yen extends losses amid BoJ uncertainty and risk-on sentiment
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The Japanese Yen (JPY) struggled to hold onto early session gains on Monday, as uncertainty surrounding the Bank of Japan’s (BoJ) rate-hike plans and a prevailing risk-on mood undermined the safe-haven currency. The USD/JPY pair traded near the top of its daily range, approaching the mid-154.00s, supported by a recovering US Dollar (USD) and retreating US bond yields.
BoJ rate hike plans clouded by political uncertainty
Despite hawkish remarks from BoJ Governor Kazuo Ueda, who left the door open for a potential rate hike in December, traders remain cautious. Domestic political uncertainty in Japan is seen as a potential constraint on the BoJ's ability to tighten monetary policy further. This hesitance has kept JPY under pressure, with safe-haven demand also limited by optimism over a possible ceasefire deal between Israel and Hezbollah, which has buoyed broader risk appetite.
Japanese inflation data has provided mixed signals, with stronger consumer price growth failing to significantly shift market sentiment. Traders are waiting for clearer guidance from the BoJ before placing directional bets on the Yen, as uncertainty continues to dominate the domestic monetary policy narrative.
US Dollar gains on inflation concerns and fiscal optimism
The US Dollar, while retreating from eight-week highs, remains well-supported by expectations that the new Trump administration’s policies could reignite inflation and limit the Federal Reserve’s (Fed) room for further rate cuts. Market participants have scaled back bets on a December rate cut, with CME Group’s FedWatch Tool showing a 55% probability of a 25-basis-point cut and a 45% likelihood of rates remaining on hold.
Optimism surrounding Trump’s business-friendly fiscal policies has been reinforced by strong US economic data. The flash Composite PMI rose to 55.3 in November, a 31-month high, indicating robust business activity and accelerating economic growth. This has provided further support for the USD/JPY pair, despite intervention fears linked to a sharp drop in US Treasury yields, which fell to 4.33%.
Technical outlook: USD/JPY faces pivotal levels
The USD/JPY pair remains in a precarious technical position, with the 100-period Simple Moving Average (SMA) acting as a pivot point. On the downside, the pair finds immediate support near the 153.30-153.25 region, followed by the 153.00 psychological level. A decisive break below 153.00 would signal deeper bearish pressure, targeting mid-152.00s and potentially the 200-day SMA near 152.00.
On the upside, the 154.00 level serves as the immediate hurdle, followed by resistance at 154.40. Sustained buying above these levels could propel the pair toward the key psychological resistance at 155.00 and further into the 155.40-155.50 supply zone. A breakout beyond this zone would pave the way for a retest of the multi-month high of 156.75, recorded on November 15.
Trading implications
For traders, USD/JPY offers a mixed outlook with opportunities on both sides. On the bearish front, a decisive break below 153.00 could open short positions targeting the 152.00 region. Conversely, bullish traders should look for sustained buying above 154.40 and 155.00 to validate a move toward 156.00 and beyond.
Upcoming catalysts, including the US Personal Consumption Expenditures (PCE) Price Index, are likely to provide fresh direction for the pair. As the Fed and BoJ approach critical monetary decisions, market participants should remain attuned to shifts in policy sentiment and technical developments around key levels. --
BoJ rate hike plans clouded by political uncertainty
Despite hawkish remarks from BoJ Governor Kazuo Ueda, who left the door open for a potential rate hike in December, traders remain cautious. Domestic political uncertainty in Japan is seen as a potential constraint on the BoJ's ability to tighten monetary policy further. This hesitance has kept JPY under pressure, with safe-haven demand also limited by optimism over a possible ceasefire deal between Israel and Hezbollah, which has buoyed broader risk appetite.
Japanese inflation data has provided mixed signals, with stronger consumer price growth failing to significantly shift market sentiment. Traders are waiting for clearer guidance from the BoJ before placing directional bets on the Yen, as uncertainty continues to dominate the domestic monetary policy narrative.
US Dollar gains on inflation concerns and fiscal optimism
The US Dollar, while retreating from eight-week highs, remains well-supported by expectations that the new Trump administration’s policies could reignite inflation and limit the Federal Reserve’s (Fed) room for further rate cuts. Market participants have scaled back bets on a December rate cut, with CME Group’s FedWatch Tool showing a 55% probability of a 25-basis-point cut and a 45% likelihood of rates remaining on hold.
Optimism surrounding Trump’s business-friendly fiscal policies has been reinforced by strong US economic data. The flash Composite PMI rose to 55.3 in November, a 31-month high, indicating robust business activity and accelerating economic growth. This has provided further support for the USD/JPY pair, despite intervention fears linked to a sharp drop in US Treasury yields, which fell to 4.33%.
Technical outlook: USD/JPY faces pivotal levels
The USD/JPY pair remains in a precarious technical position, with the 100-period Simple Moving Average (SMA) acting as a pivot point. On the downside, the pair finds immediate support near the 153.30-153.25 region, followed by the 153.00 psychological level. A decisive break below 153.00 would signal deeper bearish pressure, targeting mid-152.00s and potentially the 200-day SMA near 152.00.
On the upside, the 154.00 level serves as the immediate hurdle, followed by resistance at 154.40. Sustained buying above these levels could propel the pair toward the key psychological resistance at 155.00 and further into the 155.40-155.50 supply zone. A breakout beyond this zone would pave the way for a retest of the multi-month high of 156.75, recorded on November 15.
Trading implications
For traders, USD/JPY offers a mixed outlook with opportunities on both sides. On the bearish front, a decisive break below 153.00 could open short positions targeting the 152.00 region. Conversely, bullish traders should look for sustained buying above 154.40 and 155.00 to validate a move toward 156.00 and beyond.
Upcoming catalysts, including the US Personal Consumption Expenditures (PCE) Price Index, are likely to provide fresh direction for the pair. As the Fed and BoJ approach critical monetary decisions, market participants should remain attuned to shifts in policy sentiment and technical developments around key levels. --