Yen depreciates, sold off massively

Japanese Yen Under Pressure as BoJ Hesitant on Rate Hike

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 that the Bank of Japan (BoJ) will raise interest rates further. At the same time, the US Federal Reserve (Fed) has shown signs of raising interest rates more aggressively, causing the interest rate gap between the US and Japan to not narrow, reducing the appeal of the JPY - a currency with low interest rates.

In addition, the overall bullish sentiment in the market also weakened the yen's role as a "safe haven asset". However, recent Japanese inflation data still left 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 its currency limited the sharp sell-off in the yen.

Yen investors do not have high expectations

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

The BoJ has maintained a cautious stance, focusing on wage-led economic growth and guarding 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 that the BoJ will not raise interest rates in January but may postpone it until March. This continues to weaken the Yen.

Japan's Finance Minister Katsunobu Kato expressed concern about exchange rate fluctuations and said the government would take action if the yen was sold off too much.

Meanwhile, in the US, the 10-year bond yield just hit its highest level since May, reflecting that the market is adjusting to a "less easing" Fed policy in 2025. The US dollar continued to strengthen, near a two-year peak, despite the US consumer confidence index falling slightly from 111.7 to 104.7.

Investors are now awaiting fresh data on the Richmond manufacturing index from the US, amid thin trading ahead of 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.