Yen depreciates, is sold off massively

Japanese Yen under pressure as BoJ hesitates to raise interest rates

According to FXStreet, on December 25, the Japanese Yen (JPY) continued to fluctuate at a low level against the US Dollar, near its lowest level in many months.

The reason is that investors do not have much confidence in the Bank of Japan (BoJ) to raise interest rates further. At the same time, the US Federal Reserve (Fed) has shown signs of raising interest rates more strongly, causing the interest rate gap between the US and Japan to not narrow, reducing the appeal of JPY - a currency with low interest rates.

In addition, the general optimism in the market also weakens the role of the Yen as a "safe asset". However, recent Japanese inflation data still leaves open the possibility of the BoJ raising interest rates in January or March. In addition, concerns about geopolitical risks, trade wars and the possibility of the Japanese government intervening to support the domestic currency have limited the strong sell-off of the Yen.

Yen investors do not expect too much

The minutes of the BoJ's October meeting released on Tuesday showed that the bank is still likely to gradually raise interest rates if inflation develops as expected, with a target of reaching 1% by the end of fiscal 2025.

The BoJ remains cautious, focusing on wage-led economic growth and guard against domestic and foreign economic risks. BoJ Governor Kazuo Ueda also said they need more data to assess whether wages will continue to rise next year before making a major decision.

Investors now believe the BoJ will not raise interest rates in January but may postpone it until March. This further weakens the Yen.

Japanese Finance Minister Katsunobu Kato expressed concern about exchange rate fluctuations and affirmed that the government will take action if the Yen is sold off too much.

Meanwhile, in the US, 10-year bond yields have just reached their highest level since May, reflecting that the market is adapting to the Fed's "less loose" policy in 2025. The US Dollar continues to strengthen, near a two-year peak, despite the US consumer confidence index falling slightly from 111.7 to 104.7.

Currently, investors are waiting for new data on the Richmond manufacturing index from the US, in the context of quite few transactions at Christmas.

According to Lao Dong, updated at 2:00 p.m. on December 25, the USD/JPY exchange rate is currently fluctuating around 157.298 USD/JPY, meaning 1 USD can be exchanged for about 157 JPY.