Yen sees mixed sentiment before BoJ meeting and Trump’s inauguration
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The Japanese Yen (JPY) experienced fluctuating performance against the US Dollar (USD) early this week, with the USD/JPY pair stabilizing near the 156.15-156.20 range. Market participants balanced upbeat domestic economic data against broader geopolitical uncertainties and US policy expectations under President-elect Donald Trump.
Key drivers behind JPY’s movement
Japan’s Core Machinery Orders rose by 3.4% month-on-month in November 2024, marking a second consecutive month of growth and the strongest increase in nine months.
Hawkish signals from the Bank of Japan (BoJ), including comments from Deputy Governor Ryozo Himino and Governor Kazuo Ueda, suggest the possibility of a rate hike at the January 23-24 meeting.
Broadening inflationary trends and positive wage growth in Japan continue to underpin support for the Yen.
Despite these factors, the Yen’s safe-haven appeal was capped by a positive global risk tone and subdued sentiment ahead of Trump’s inaugural address. Traders appeared cautious, opting to sideline aggressive positioning until clearer signals emerge.
US economic indicators and their impact
US economic data presented mixed signals, adding complexity to the USD/JPY trajectory. Key highlights include:
US inflation data last week indicated a slowdown in price pressures, fueling speculation about potential rate cuts by the Federal Reserve in 2025.
Fed Governor Christopher Waller’s comments pointed to possible rate reductions, reinforcing dovish expectations.
Housing Starts surged 3.3% in December, reaching their highest level since February 2024, although Building Permits posted a slight decline.
The yield on the benchmark 10-year US Treasury bond rebounded from a two-week low, offering temporary support to the USD.
Technical analysis: USD/JPY outlook
Resistance levels
Friday’s rebound from ascending channel support faltered at the 156.55-156.60 region.
Breaking above this zone could lead to further gains, with targets at 157.00, 157.40-157.45, and 158.00, extending to the multi-month top of 158.85 seen on January 10.
Support levels
The ascending channel support near 155.25 remains a critical defensive point.
Below this, the 155.00 psychological mark and subsequent levels at 154.60-154.55 and 154.00 could come into focus.
Further downside could test the 153.35-153.30 horizontal support zone.
Market sentiment and outlook
As traders await the two-day BoJ meeting and Trump’s inauguration, the USD/JPY pair is likely to remain range-bound. Strong domestic fundamentals favor the Yen, but external uncertainties, including Trump’s potential trade policies and global risk appetite, introduce volatility.
Should the BoJ signal a definitive rate hike, the Yen may gain further traction, pushing USD/JPY lower. Conversely, any dovish surprises or supportive US data could shift momentum in favor of the Dollar. Traders are advised to monitor policy developments and technical levels closely as the week unfolds.
Key drivers behind JPY’s movement
Japan’s Core Machinery Orders rose by 3.4% month-on-month in November 2024, marking a second consecutive month of growth and the strongest increase in nine months.
Hawkish signals from the Bank of Japan (BoJ), including comments from Deputy Governor Ryozo Himino and Governor Kazuo Ueda, suggest the possibility of a rate hike at the January 23-24 meeting.
Broadening inflationary trends and positive wage growth in Japan continue to underpin support for the Yen.
Despite these factors, the Yen’s safe-haven appeal was capped by a positive global risk tone and subdued sentiment ahead of Trump’s inaugural address. Traders appeared cautious, opting to sideline aggressive positioning until clearer signals emerge.
US economic indicators and their impact
US economic data presented mixed signals, adding complexity to the USD/JPY trajectory. Key highlights include:
US inflation data last week indicated a slowdown in price pressures, fueling speculation about potential rate cuts by the Federal Reserve in 2025.
Fed Governor Christopher Waller’s comments pointed to possible rate reductions, reinforcing dovish expectations.
Housing Starts surged 3.3% in December, reaching their highest level since February 2024, although Building Permits posted a slight decline.
The yield on the benchmark 10-year US Treasury bond rebounded from a two-week low, offering temporary support to the USD.
Technical analysis: USD/JPY outlook
Resistance levels
Friday’s rebound from ascending channel support faltered at the 156.55-156.60 region.
Breaking above this zone could lead to further gains, with targets at 157.00, 157.40-157.45, and 158.00, extending to the multi-month top of 158.85 seen on January 10.
Support levels
The ascending channel support near 155.25 remains a critical defensive point.
Below this, the 155.00 psychological mark and subsequent levels at 154.60-154.55 and 154.00 could come into focus.
Further downside could test the 153.35-153.30 horizontal support zone.
Market sentiment and outlook
As traders await the two-day BoJ meeting and Trump’s inauguration, the USD/JPY pair is likely to remain range-bound. Strong domestic fundamentals favor the Yen, but external uncertainties, including Trump’s potential trade policies and global risk appetite, introduce volatility.
Should the BoJ signal a definitive rate hike, the Yen may gain further traction, pushing USD/JPY lower. Conversely, any dovish surprises or supportive US data could shift momentum in favor of the Dollar. Traders are advised to monitor policy developments and technical levels closely as the week unfolds.