The Japanese Yen (JPY) strengthened against the U.S. Dollar (USD) for the third straight day on Monday, recovering from a multi-month low reached last week. The Yen’s gains are primarily driven by a risk-off sentiment, as reflected in the weaker tone across global equity markets, which has heightened demand for the Yen as a safe-haven asset.
However, doubts regarding the Bank of Japan’s (BoJ) plans for a rate hike are likely to limit further appreciation of the Yen. While inflationary pressures in Japan continue to rise, leaving the possibility open for a BoJ rate hike in January or March, some investors believe the central bank may hold off until April. This delay would allow the BoJ to assess whether the current strong wage growth will persist into the spring wage negotiations.
Moreover, the recent widening of the U.S.-Japan yield differential is expected to cap any substantial gains in the Yen. The U.S. Dollar remains supported by expectations that the Federal Reserve will pause its rate-cutting cycle, which could provide further upward momentum for the USD/JPY pair.
With no major economic releases expected in the near term, the mixed fundamental environment suggests caution for those looking to position for further Yen strength. Traders are advised to carefully monitor developments in both Japan’s inflation data and the U.S. economic outlook before making significant moves.
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