The Japanese Yen (JPY) continues to strengthen in early European trading on Thursday, pushing USD/JPY further below 154.50 and closer to its one-month low from earlier this week. Market expectations that the Bank of Japan (BoJ) will hike interest rates again by year-end continue to support the JPY. Additionally, a fresh decline in US Treasury bond yields, narrowing the US-Japan yield differential, has further boosted demand for the lower-yielding Yen.
However, concerns over the potential economic impact of US President Donald Trump’s trade policies may limit aggressive JPY buying. Meanwhile, the Federal Reserve’s (Fed) hawkish pause on Wednesday has bolstered the US Dollar (USD), which could provide some support to the USD/JPY pair. Traders are now looking ahead to the European Central Bank (ECB) meeting, which may increase market volatility and drive further demand for the safe-haven Yen. Additionally, the Advance US Q4 GDP report could introduce short-term trading opportunities.
JPY Gains on Hawkish BoJ Sentiment Amid Market Uncertainty
- Minutes from the BoJ’s December meeting, released Wednesday, indicated discussions on using neutral interest rate estimates to guide future rate hikes.
- Former BoJ board member Makoto Sakurai stated on Tuesday that steady rate increases remain feasible due to rising wages, sustained inflation, and strong economic growth.
- The Federal Reserve, as expected, held rates steady after its two-day meeting and signaled no immediate plans for rate cuts.
- Fed Chair Jerome Powell emphasized a patient stance, stating there is no urgency to adjust policy and reaffirming that rates will stay elevated amid concerns over Trump’s trade policies, which could fuel inflation.
- The 10-year US Treasury yield has struggled to sustain gains post-FOMC due to uncertainty surrounding the Trump administration’s economic policies.
- Reports from Asahi newspaper indicate that Japan’s Prime Minister Shigeru Ishiba is finalizing plans for a February 7 meeting with US President Donald Trump in Washington.
- The ECB’s policy decision later today is expected to introduce further volatility, alongside the Advance US Q4 GDP print.
USD/JPY at Risk of Retesting Monthly Lows Near 153.70
The USD/JPY pair faced renewed selling pressure near the 156.00 level, breaking below the key 155.00 psychological mark, confirming a multi-month ascending channel breakdown. Momentum indicators on the daily chart suggest continued downside movement, making a retest of the 153.70 region—a multi-week low touched on Monday—a strong possibility.
Key resistance levels for a rebound:
- 155.00 round figure
- 155.35-155.40 region
- 156.00 psychological level
Any recovery attempt is likely to face selling pressure near these levels. A sustained break above 156.25 could trigger short-covering, potentially lifting USD/JPY toward 156.70-156.75, with further resistance at 157.00 and 157.60.
For now, the bias remains bearish, with further losses expected if the pair stays below 154.00. Traders will closely watch US data and global central bank policy updates for the next directional move.
