The USD/JPY currency pair dipped below the 154.00 mark on Tuesday as the US dollar pulled back after a six-day upward streak. This correction appears to be a natural reaction following the dollar’s nearly 3% gain during the rally.
The downward movement of the dollar is being tempered by the significant rise in US Treasury yields. The benchmark 10-year yield has been on an upward trajectory for the seventh consecutive day, surpassing the 4.40% level. The widening disparity between US and Japanese Treasury yields is likely to impede any significant recovery of the Japanese yen.
Robust US Data Bolsters the Dollar
US macroeconomic data has painted a picture of strong growth in the fourth quarter. Despite expectations of a rate cut by the Federal Reserve in December, investors anticipate that the Fed may emphasize the economy’s underlying momentum and relatively higher inflation, potentially leading to a more hawkish forward guidance.
In contrast, the Bank of Japan is expected to maintain its current interest rate levels on Thursday. After previously hinting at a 25 basis points cut, dovish remarks from BoJ officials suggest that the bank may delay any adjustment until January to better evaluate the potential impact of the new US administration’s policies.
Anticipation for US Retail Sales Data
Today’s calendar features the release of US Retail Sales data, which is expected to reveal buoyant consumption levels. When combined with the strong services activity figures reported earlier this week, these factors are likely to curtail any significant downward movement of the US dollar, at least until the conclusion of the Federal Reserve’s meeting. The data could potentially provide an additional boost to the dollar, depending on the outcome, and further influence the USD/JPY exchange rate dynamics.
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