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Fundamental Analysis

Japanese Yen Nears Monthly Low Against USD, Remains Under Pressure

Japanese Yen Nears Monthly Low

Japanese Yen Nears Monthly Low Against USD, Remains Under Pressure

The Japanese Yen (JPY) extends its losing streak against the US Dollar (USD) for the fifth consecutive session, reaching a two-week low during Friday’s Asian trading hours. Expectations that the Bank of Japan (BoJ) will maintain its ultra-loose monetary policy at next week’s meeting weigh on the JPY, while rising US Treasury bond yields—supported by a less dovish Federal Reserve (Fed) outlook—add further downward pressure.

Factors Driving JPY Weakness

  1. BoJ Policy Expectations:
    The market widely anticipates the BoJ will refrain from raising interest rates, reinforcing its status as a lower-yielding currency and driving investors toward higher-yielding assets like the USD.
  2. US Treasury Yields:
    The USD benefits from rising US Treasury yields, bolstered by speculation that the Fed may slow its pace of rate cuts amid stalled inflation progress, further diminishing the JPY’s appeal.
  3. Safe-Haven Dynamics:
    Geopolitical risks, including ongoing tensions in the Russia-Ukraine conflict and Middle East, provide limited support to the safe-haven JPY. However, this is insufficient to offset its broader weakness.
  4. Cautious Market Sentiment:
    Concerns surrounding US President-elect Donald Trump’s tariff plans contribute to a softer risk tone, curbing aggressive USD/JPY gains. Traders remain cautious ahead of next week’s critical FOMC and BoJ policy decisions.

Technical Outlook: Key Levels to Watch

  • Upside Potential:
    The USD/JPY pair is testing resistance at the 70-152.80 confluence, which includes the 200-period SMA on the 4-hour chart and the 50% Fibonacci retracement of the recent pullback. A decisive breakout could propel the pair to 153.00, with further gains targeting 153.65 (61.8% Fibonacci retracement) and potentially the 154.00 mark.
  • Downside Risks:
    Failure to hold above 00 may see the pair testing support near 151.75, aligning with the 38.2% Fibonacci retracement and the recent swing low. A break below this level could expose the pair to 151.00, followed by intermediate support at 150.50, and ultimately the psychological 150.00 level.

Outlook and Key Event Risks

While the USD/JPY pair shows a bullish bias, the lack of sustained momentum above key technical levels suggests cautious optimism. Next week’s FOMC and BoJ meetings will be pivotal in determining the pair’s trajectory. A less dovish Fed stance or any surprises from the BoJ could influence the balance of risks, keeping traders on edge.