Created on December 26, 2024

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• The Bank of Japan’s recent caution regarding future interest rate hikes has significantly weakened the Japanese Yen against other major currencies, led by the US Dollar.
• As a result, the USD/JPY pair is hovering around the resistance level of 157.20, near its five-month high.
• Despite the Bank of Japan’s warnings, the US Dollar remains at its two-year high, driven by the continuation of the Trump trade war, the strong US economic performance. Also, the halt of the US Federal Reserve’s plans for further rate cuts in the future.

Bank of Japan Cautions Against Rate Hikes

 In this regard, Bank of Japan Governor Kazuo Ueda recently avoided giving a clear signal that he might raise interest rates in early 2025, reiterating the need to continue monitoring risks to the economy in statements that pushed the Yen down. The Governor stated, “The timing and pace of adjusting the degree of monetary easing will depend on developments in economic activity and prices as well as financial conditions going forward.” He added, “The Bank needs to pay due attention to various risk factors at home and abroad and examine how these factors will affect the outlook for and risks to economic activity and prices in Japan and the probability of achieving the outlook.”

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According to the Governor, the Bank of Japan may wait longer before raising interest rates, a view that surprised investors who expected a move in January 2025 if the bank did not take any action in its December 2024 meeting. The Bank of Japan raised interest rates in March for the first time in 17 years. However, some economists and policymakers already feel that the country is ready for the next interest rate hike. Inflation in Japan has remained at or above the Bank of Japan’s target for two and a half years, and the economy has continued to recover moderately.

Timing of Japanese Intervention in the Forex Market

As usual, the continued weakness of the Japanese Yen, according to licensed trading platforms, is constantly pushing Japanese authorities to intervene in the foreign exchange market to stop the Yen’s collapse, which harms the Japanese economy. This time, they will be cautious as Trump does not particularly want countries to intervene in the exchange markets, regardless of the prices. Recently, warnings have been issued by the Japanese Ministry of Finance regarding unilateral and speculative currency movements, as well as by the Bank of Japan.

Generally, raising interest rates could alleviate some pressure on the Japanese Yen, which is approaching levels that witnessed government intervention in the markets earlier in the year. Tokyo has spent nearly $100 billion to support the currency so far in 2024.

Trading Tips:

The US dollar against the Japanese yen will remain ready to move towards the top of 160.00 if its current gains continue

USD/JPY Technical analysis and Expectations Today:

Our technical outlook for the USD/JPY pair remains bullish, and bulls’ eyes are on the psychological resistance level of 160.00 sooner than expected. This peak will push technical indicators towards oversold levels, led by the Relative Strength Index (RSI) and the Stochastic oscillator. Conversely, on the same timeframe, the support level of 153.85 will be the beginning of a new downtrend formation. Furthermore, we still prefer buying the US Dollar against the Japanese Yen from any dip but without risk, activating take-profit and stop-loss orders to ensure the safety of the trading account from any sudden price reversals. Ultimately, the performance will remain within narrow ranges until the markets return from the Christmas holidays.

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