Last week, the Japanese Yen (JPY) witnessed a sharp decline, starting with a three-week low and ending with a record low on December 20 after the Bank of Japan (BoJ) decided to keep interest rates unchanged.
Earlier in the week, the Yen was trading around 153.960 JPY/USD, marking a three-week low as the market predicted the BoJ would not change interest rates. Meanwhile, the US Federal Reserve (Fed) has moved to continue cutting interest rates to control economic growth. Although the Yen has since recovered slightly at 153.566 JPY/USD, the downward trend still dominates.
In the last trading session of the week, after the BoJ meeting, the announcement of keeping interest rates unchanged at 0.25% sent the Yen down to a four-month low of 156.77 JPY/USD. This surprise decision raised concerns as the market had expected a rate hike to curb inflation. However, the higher-than-expected CPI, reaching 2.9% in November, still leaves open the possibility of the BoJ changing policy in 2024.
Pressure from the US market last week: US 10-year government bond yields increased, thanks to retail sales data exceeding forecasts, increasing by 0.7% in November. Although the Fed has cut interest rates, market sentiment suggests that a pause in cuts could begin early next year, adding pressure on the Yen.
Next week, new economic data such as the US personal consumption expenditure (PCE) price index and Japan's inflation forecast will play an important role. If US bond yields continue to remain high, downward pressure on the Yen will continue.
However, the BoJ is likely to adjust its policy later in the year to support the Yen's recovery, especially if the CPI continues to rise. Statements from Governor Kazuo Ueda will be the focus of investors, along with fluctuations in global yields. Investors need to closely monitor signals from both the US and Japan to predict the next trend.
Update the latest Yen exchange rate HERE.
