The Japanese Yen (JPY) is fluctuating within a narrow trading band against the US Dollar on Friday. In the early European session, it struggles to build on the modest gains from the previous day. However, the near-term bias appears to be tilting in favor of the JPY bulls, largely due to the Bank of Japan’s (BoJ) more hawkish stance. The BoJ is on track for potential further interest rate hikes, in contrast to other major central banks like the US Federal Reserve (Fed), which is expected by the market to lower borrowing costs further.
Several factors are currently underpinning the Japanese Yen. A softer risk tone in the markets, along with trade war fears and persistent geopolitical risks, have enhanced the appeal of the JPY as a safe-haven currency. Additionally, the recent decline in US Treasury bond yields and a slight deterioration in global risk sentiment have provided further support. Coupled with subdued price action of the US Dollar (USD), this has put the USD/JPY pair on the defensive near the 150.00 psychological mark as the market awaits the crucial US Nonfarm Payrolls (NFP) report. This report is set to offer fresh insights into the Fed’s rate-cut path, which will in turn drive the performance of the USD and impact the currency pair in the short term.
Japanese Yen traders are adopting a cautious approach and staying on the sidelines ahead of the US NFP report, yet the bullish bias remains. Traders are closely watching to see if the BoJ will implement another interest rate hike at its upcoming monetary policy meeting later this month. BoJ Governor Kazuo Ueda indicated last week that rate hikes are approaching as economic data are progressing as expected. Meanwhile, BoJ’s Toyoaki Nakamura stated on Thursday that the central bank must be cautious when raising rates.
The ongoing conflict between Russia and Ukraine, where Russia has continued to use long-range weapons and conduct ground assaults in Ukraine’s east with no sign of letting up after nearly two years, along with concerns that US President Donald Trump’s trade tariffs could spark a second wave of global trade wars, have dampened investors’ appetite for riskier assets and lent support to the safe-haven JPY.
According to the CME Group’s FedWatch Tool, the markets are pricing in a 70% chance that the Federal Reserve will cut borrowing costs by 25 basis points at its December meeting and a 30% probability of a pause. The rate cut bets have remained relatively stable following the US Department of Labor’s report on Thursday that Initial Jobless Claims rose to 224K for the week ended November 29, from the upwardly revised 215K of the previous week. The yield on the benchmark 10-year US government bond is lingering near its lowest level since October 22, which benefits the lower-yielding JPY, although a slight uptick in the US Dollar has offered some support to the USD/JPY pair.
The market’s attention is firmly fixed on the US NFP report as it will guide Fed policymakers in their next policy decision, which will then influence the USD and give a new impetus to the currency pair.
From a technical perspective, the overnight swing low around the 148.65 region is currently safeguarding against immediate downside risks before the 149.00 mark and the 100-day Simple Moving Average (SMA), which is currently around the 148.80 region. The 100-day SMA serves as a crucial pivot point, and a decisive break below it would be seen as a new trigger for bearish traders. Given that the oscillators on the daily chart are in negative territory, the USD/JPY pair could then potentially slide to the 148.10 – 148.00 region, and further to the 147.35 – 147.30 zone and the 147.00 round figure.
On the upside, any attempted recovery may face resistance near the 150.55 region, followed by the 150.70 hurdle, the 151.00 round figure, and the weekly high around the 151.20 – 151.25 zone touched on Wednesday. A sustained move beyond the latter could lift the USD/JPY pair to the 152.00 mark or the significant 200-day SMA. If there is follow-through buying, it would suggest that the recent corrective decline from the multi-month high reached in November has concluded and shift the bias in favor of bullish traders.
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