The weakening of the Japanese Yen and the impact of the USD
This week, the Japanese Yen (JPY) continued to weaken, facing the strength of the US dollar (USD). The USD/JPY pair is now nearing its peak in many months. The market is paying attention to when the Bank of Japan (BoJ) will change interest rate policy, which further weakens the Yen.
An important factor weakening the Japanese Yen is the increase in yield differential between the US and Japan. US government bond yields continue to increase strongly after signals of tightening monetary policy from the US Federal Reserve (Fed). This makes the USD more attractive, while the Japanese Yen remains lower, causing cash flow to shift out of this currency.
Japan's economic situation is not strong enough to support the Yen
Although economic data from Japan showed expansion in the service sector in December, it was still not strong enough to change expectations of a BoJ interest rate hike. Service sector PMI indicators continue to show growth, but analysts are still skeptical about the BoJ's ability to quickly change monetary policy. The BoJ is expected to raise interest rates to 0.50% by the end of March, but there is still much uncertainty surrounding this decision.
USD/JPY exchange rate may continue to increase in the coming time
Currently, the USD/JPY pair is facing strong resistance in the 158.00 area. If it breaks above this level, the exchange rate could continue to increase to 159.00 and even reach the psychological mark of 160.00. However, if the Yen finds strong buying momentum at 157.00, the pair may adjust down, with the next support levels around 156.65 and 156.00.
With important economic events coming up, including US employment reports and other macro data, the market will continue to closely monitor signals from the BoJ and the Fed to assess the next trend of the Japanese Yen. Meanwhile, the stability of the USD continues to be a key factor keeping the Yen having difficulty recovering.
