The Japanese Yen builds on the intraday ascent on Thursday and has reversed the overnight losses against its American counterpart.
Expectations that the Bank of Japan will deliver an interest rate hike this month, along with persistent geopolitical tensions and concerns about US President-elect Donald Trump’s tariff plans, drive some haven flows towards the JPY.
Furthermore, the recent decline in the US Treasury bond yields is seen as another factor underpinning the lower-yielding JPY, which seems unaffected by BoJ board member Toyoaki Nakamura’s dovish remarks.
Apart from this, a modest US dollar downtick drags the USDJPY pair below the 150.00 psychological mark. That said, bets for a less dovish Federal Reserve might act as a tailwind for the USD and the pair.
“The USDJPY traded firmer, in line with our caution for rebound risks not ruled out in the near term, and the pair was last at 150.15,” OCBC’s FX analysts Frances Cheung and Christopher Wong said in a note.
“Nakamura said it is important for the BoJ to exercise care when it makes adjustments to policy aimed at rolling back the degree of monetary easing. The probability of a BoJ hike in the December MPC dropped to 36.3% from 57.3% a week ago. We are still looking for BoJ to hike,” added the OCPC analysts.
“Price-related data, labour market development, wage growth expectations continue to reinforce the view that the BoJ is likely to proceed with another hike, sooner rather than later,” they said.
“Direction of travel for the USDJPY remains skewed towards the downside as the Fed cuts and the BoJ hikes. The risk is a slowdown in pace of respective policy normalisation.”
Stronger Tokyo Consumer Price Index for November and BoJ Governor Kazuo Ueda’s hawkish remarks last week lifted bets for another interest rate hike in December.
BoJ board member Nakamura said that he is not confident about the sustainability of wage growth and sees a chance that inflation may miss 2% from fiscal 2025 onward. Nakamura added that there should not be a preset idea on when to raise interest rates, as Japan’s economy is still in recovery and not yet at expansionary phase.
(Source: OANDA)
