Yen plunges to multi-month low
The Japanese Yen (JPY) is weakening against the US Dollar (USD) on January 10. The USD/JPY pair is currently trading near multi-month highs reached earlier this week.
Despite signs of rising inflationary pressures in Japan, investors remain uncertain about when the Bank of Japan (BoJ) will raise interest rates. In addition, the Fed's continued stance on raising interest rates has widened the yield spread between the US and Japan, reducing the appeal of the low-yielding yen.
However, market jitters, along with trade war risks and geopolitical tensions due to the Russia-Ukraine conflict, could support the yen as a safe-haven asset. Speculation about possible Japanese government intervention to prop up the yen also discouraged investors from placing strong bets on selling the yen. However, the JPY’s decline was limited by a strong USD and expectations of a positive US jobs report (NFP).
Japan's economy is at a critical stage, needing to eliminate deflationary sentiment and promote growth based on rising wages and investment, the country's economy minister said.
However, data showed that real household spending fell 0.4% in November, marking the fourth straight month of decline due to higher prices. Real wages also fell for a fourth straight month, suggesting inflation remains a major problem. This has led many to expect the BoJ to raise interest rates as early as 2025. However, some investors believe the BoJ will wait until April, after the outcome of wage negotiations between companies and unions.
Meanwhile, U.S. government bond yields remain near their highest levels of the year as the Fed maintains its stance on raising interest rates. Comments from Fed officials also suggest that interest rates will likely be cut gradually and based on economic data.
Yen Trend Forecast
The US dollar remains firm near two-year highs, helping USD/JPY stay above 158.00. Bulls are in control and could target 159.00, or even 160.00 if current resistance levels are broken.
Conversely, if the price declines, the 157.60 area will be the nearest support. If this area is broken, USD/JPY could continue to decline to 157.00 or deeper, turning into a short-term downtrend.
According to Lao Dong, updated at 3:00 p.m. on January 10, the USD/JPY exchange rate is currently fluctuating around 158.385 USD/JPY, meaning 1 USD can be exchanged for about 158 JPY.
