Daily Price Outlook
During the European trading session, the USD/JPY currency pair extended its bearish trend, remaining under pressure around the 158.17 level, before hitting an intra-day low of 157.76.
Despite Japan's strong wage growth data, there’s uncertainty about when the Bank of Japan (BoJ) will raise interest rates again, which has been holding back the yen. Meanwhile, the widening yield gap between the US and Japan, fueled by the Federal Reserve’s hawkish stance, continues to weigh on the yen.
However, speculation that Japanese authorities might step in to support the yen is preventing aggressive selling. This, along with global geopolitical risks and concerns over US President-elect Donald Trump’s protectionist policies, is providing some support for the yen.
On the flip side, the recent pullback in US bond yields due to a flight to safety has kept the USD bulls on the defensive, limiting the extent of the dollar's strength.
This cautious sentiment in the market is putting a lid on the USD/JPY pair's movement, as the yen's safe-haven appeal is offering some support, despite the broader strength of the US dollar.
Impact of BoJ Data and US Policy Uncertainty on USD/JPY Pair Volatility
On the BoJ front, government data released this Thursday showed Japan's base salary increased by 2.7% in November, marking the fastest rise since 1992.
Overtime pay also saw growth, rising 1.6% from the previous month's 0.7% gain. However, inflation-adjusted real wages fell for the fourth month in a row, dropping by 0.3%.
This came as the inflation rate used for wage calculations jumped from 2.6% in October to 3.4% in November. The BoJ has said that sustained wage increases are necessary for raising borrowing costs, and these figures provide a modest boost to the Japanese yen.
Despite this positive data, investors remain skeptical that the BoJ will raise rates in its January meeting. Many expect the BoJ to wait until March, partly due to uncertainty over US President-elect Donald Trump's potential protectionist policies.
CNN reported that Trump is considering declaring a national economic emergency to justify imposing tariffs on both allies and adversaries, which sent the yield on the 10-year US government bond to its highest level since April 25.
This overshadowed the mixed labor market data from the US, which showed a slower-than-expected rise in private sector jobs for December but a drop in unemployment claims to an 11-month low.
Looking ahead, market focus will remain on speeches from influential FOMC members later today, but the most important event will be Friday's US Nonfarm Payrolls (NFP) report.
Investors are keen to see how the US labor market is performing and how this could impact future interest rate decisions by the Federal Reserve. The mixed economic data, combined with the uncertainty surrounding US policies, is adding volatility to global markets, including the USD/JPY pair.
Therefore, the data and uncertainty surrounding the BoJ’s rate hike and US policies contribute to volatility in the USD/JPY pair. A cautious market sentiment, influenced by mixed economic data and geopolitical risks, may limit significant movements in the pair.
USD/JPY – Technical Analysis
USD/JPY is trading at 157.930, down 0.25%, reflecting a bearish tone as the pair struggles to hold above key technical levels. The pivot point at 158.475 remains a critical marker, and the pair's inability to reclaim this level suggests further downside pressure.
The 50 EMA at 157.544 acts as near-term resistance, aligning with broader selling momentum. RSI readings indicate bearish sentiment, with the pair at risk of deeper declines if momentum persists.
Immediate resistance lies at 159.406, followed by 160.406 and 161.117, which may limit any bullish recovery.
On the downside, immediate support is found at 156.904, with further levels at 155.975 and 154.924 offering potential buffers against an extended selloff. A sustained move below the pivot point could trigger a decline toward 156.904 and beyond.
Traders considering short positions may look to sell below 158.448, targeting 156.904 while setting a stop-loss at 157.074.
A break above 158.475 would be required to negate the bearish outlook, paving the way for a test of 159.406. With a cautious sentiment prevailing, traders should monitor price action near the pivot for further clues on directional strength.
Related News
- GOLD Price Analysis – Jan 09, 2025
JOIN LHFX TODAY
24/7 live support, lightning fast withdrawals, guaranteed safe and reliable trading platforms with a true ECN broker.