Yen makes dramatic reversal

According to FXStreet, on December 5, the Japanese Yen (JPY) continued to rise, recovering from last night's decline against the US Dollar (USD).

The rise was supported by expectations that the Bank of Japan (BoJ) will raise interest rates this month, along with concerns about global political tensions and tariff policies from US President-elect Donald Trump. At the same time, falling US Treasury yields also increased the attractiveness of the yen.

Despite dovish comments from BoJ member Toyoaki Nakamura, markets appeared unaffected. A slight decline in the US dollar also helped push USD/JPY below the key 150.00 level. However, expectations that the US Federal Reserve will maintain its tight interest rate policy could support the US dollar in the near term.

In Japan, Tokyo's consumer price index (CPI) in November beat forecasts, bolstering the case for a further interest rate hike in December. However, BoJ member Toyoaki Nakamura expressed concerns that wage growth is not yet sustainable and inflation may not reach the 2% target after 2025. He also stressed that Japan should not adopt a fixed roadmap for when to raise interest rates, as the economy is still in the recovery phase and has not yet entered a strong growth phase.

On the international stage, Russia has warned that it could escalate the conflict in Ukraine if the US and its allies do not recognise its borders. Meanwhile, investors remain concerned that Donald Trump’s tariff policies could trigger a new wave of trade wars, worsening the global economic outlook.

In the US, recent data have shown signs of economic slowdown. The ISM services index fell to a three-month low in November, while the yield on the 10-year Treasury note fell sharply, hitting its lowest level since October 21. However, expectations that the Fed will continue to tighten monetary policy helped limit the decline in bond yields.

The Fed's Beige Book report showed the U.S. economy grew slightly in November as businesses grew more optimistic about the demand outlook. Fed Chairman Jerome Powell said the Fed would be cautious in adjusting interest rates as long as the economy remained stable. However, some Fed members stressed that it would take more time to reach the 2% inflation target.

Despite concerns that Trump’s policies could lead to a resurgence in inflation, US bond yields have also begun to recover slightly, supporting the dollar. In the short term, traders will be closely watching US weekly jobless claims data, but the real focus will be on Friday’s non-farm payrolls (NFP) report, which will play a key role in guiding the Fed’s monetary policy in the coming months.

According to Lao Dong, updated at 2:00 p.m. on December 5, the USD/JPY exchange rate is currently fluctuating around 149,755 USD/JPY, meaning 1 USD can be exchanged for about 149 JPY.