USD/JPY may face increased volatility in the near term, driven by stronger-than-expected U.S. economic data and widening interest rate differentials between the U.S. and Japan, which continue to pressure the Yen. However, potential intervention from the Bank of Japan could disrupt the market and temporarily curb the Yen’s weakness.
The U.S. Dollar pushed higher this week, while other major currencies were near multi-month lows after strong U.S. data drove a spike in bond yields and removed some bets on Federal Reserve rate cuts.
Tuesday’s data revealed an unexpected increase in U.S. job openings for November, along with low layoff levels. Additionally, a separate report showed that U.S. services sector activity accelerated in December, with input prices reaching a two-year high, potentially signalling renewed inflationary pressures.
In Japan, BoJ Governor Ueda said in a press conference earlier this week that officials are looking to raise interest rates further only if the economy allows it. In other words, things should keep improving.
Lower interest rates generally boost economic growth as businesses and consumers are encouraged to borrow and spend, improving liquidity and overall wellbeing. But this has its risks too, like inflation rebounding, which has happened already.
Finance Minister Katsunobu Kato repeated his warning against speculative, one-sided moves in the currency market, signalling the government’s readiness to intervene if excessive volatility persists.
The Japanese Yen has been under pressure amid growing uncertainty over the timing of interest rate hikes by the Bank of Japan.
Traders and investors will await Friday’s U.S. labour data where Nonfarm Payrolls are forecasted at 154k and the Unemployment Rate is forecasted at 4.2%, a slight increase from the previous number. The data will show clues on how the Fed will determine its next moves and could trigger high volatility in the markets.
Technical Analysis
Source: TradingView
USD/JPY has maintained a strong uptrend by forming higher lows and higher highs. Price is currently trading around resistance. If bulls hold their momentum, traders might monitor the 159.2 level as a new potential resistance. However, if the currency pair is unable to hold onto gains, price may look to move lower, with 156.150 monitored as potential support.
