Japanese Yen remains on the front foot vs weaker USD; lacks bullish conviction

Japanese Yen benefits from global flight to safety, BoJ-Fed divergence

A government report published this Thursday showed that average nominal wages, or total cash earnings, in Japan rose 0.5% from a year earlier in November, marking the slowest pace since December 2021. Additional details revealed that inflation-adjusted real wages fell for the 11th consecutive month, by 2.8% during the reported month.
The data suggested that the underlying trend of inflation outpacing wage growth has not changed and poses a challenge for the Bank of Japan, which signalled that it would raise rates further if economic and price developments move in line with forecasts. In fact, BoJ Governor Kazuo Ueda said this week that wages and prices are likely to rise together.
Nevertheless, market participants seem convinced that the BoJ will tighten the monetary policy further. This marks a significant divergence in comparison to rising bets that the US Federal Reserve would lower borrowing costs again in March and deliver another rate cut later this year, which might continue to benefit the lower-yielding Japanese Yen.
Meanwhile, Wednesday's mixed US economic data did little to temper dovish Fed expectations, which, in turn, might keep a lid on a two-day-old US Dollar uptrend and cap the USD/JPY pair. The Institute for Supply Management reported that its Non-Manufacturing Purchasing Managers' Index increased to 54.4 in December from 52.6 in the previous month.
An unexpected pickup in the US services sector activity, however, was offset by unimpressive US labor market reports. In fact, the Automatic Data Processing (ADP) Research Institute reported that private-sector employment rose by 41K in December. This reading followed the 29K fall (revised from -32K) in November and was slightly weaker than the 47K expected.
Separately, the Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings on the last business day of November stood at 7.146 million. This followed the 7.449 million openings recorded in October (revised from 7.67 million) and came in below the market expectation of 7.6 million, suggesting that demand for labor continued to ebb.
Traders, however, seem reluctant to place aggressive USD bearish bets and opt to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday. The crucial employment details would offer more cues about the Fed's future rate-cut path, which, in turn, will influence the USD price dynamics and provide some meaningful impetus to the USD/JPY pair.

USD/JPY needs to weaken below 156.35-156.25 confluence to back the case for further losses

The 100-period Simple Moving Average (SMA) on the 4-hour chart edges higher, underscoring a steady bullish bias, with the USD/JPY pair holding above it. The 100-period SMA currently stands at 156.22, offering nearby dynamic support. A bullish crossover emerges on the Moving Average Convergence Divergence (MACD) as the MACD line climbs above the Signal line near the zero level, while a modestly positive histogram suggests improving momentum. The Relative Strength Index (RSI) prints at 58, above the 50 midline, reinforcing a mildly bullish tone.

The rising trend line from 155.30 underpins the advance, with support aligning near 156.36. Holding above that base would keep buyers in control and preserve the upward bias. Should the USD/JPY pair remain above both the trend line and the rising 100-period SMA, the path of least resistance points higher; a close back below the trend line would ease momentum and signal a consolidative phase.

(The technical analysis of this story was written with the help of an AI tool)

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

FXStreet

Trade The World

Lebih sejuta pengguna bergantung pada FXStreet untuk data pasaran masa nyata, alat carta, pandangan pakar dan berita Forex. Kalendar ekonomi yang komprehensif dan webinar pendidikan mereka membantu pedagang kekal bermaklumat dan membuat keputusan yang dikira. FXStreet disokong oleh pasukan kira-kira 60 profesional di ibu pejabat Barcelona dan pelbagai wilayah global.

Item 1 of 0