USD/JPY climbs above 155.50 as traders await US CPI release

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USD/JPY strengthens to near 155.60 in Thursday’s early Asian session.
Fed’s Waller said the central bank still has room to cut interest rates, but it is not in a rush.
The BoJ is set to raise the short-term policy rate to 0.75% from 0.5% on Friday.

The USD/JPY pair rises to around 155.60 during the early Asian session on Thursday. The US Dollar (USD) edges higher against the Japanese Yen (JPY) on the cautious comments from Federal Reserve (Fed) Governor Christopher Waller. Traders will keep an eye on the US Consumer Price Index (CPI) inflation data for November, which will be released later on Thursday.

The Fed’s Waller said on Wednesday the US central bank is not in a rush to cut the interest rates. His remarks could provide some support to the Greenback in the near term. Markets anticipate two rate cuts next year. Fed funds futures are pricing an implied 75.6% chance of a hold in rates at the US central bank's next meeting in January, up from nearly 70% a week ago, according to the CME FedWatch tool.

On the other hand, growing acceptance that the Bank of Japan (BoJ) will raise interest rates could boost the JPY and create a headwind for the pair. The BoJ is anticipated to raise interest rates to 0.75% from 0.5% at a two-day policy meeting ending on Friday. This move would bring the benchmark rate to a three-decade high.

BoJ Governor Kazuo Ueda reiterated last week that the likelihood of the central bank's baseline economic and price outlook materializing had been gradually increasing. Ueda added that the Japanese central bank is getting closer to attaining its inflation target.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.