Yen Recovers From Record Low

According to FXStreet, on December 16, the Japanese Yen (JPY) recovered slightly after hitting a three-week low against the US Dollar.

However, the likelihood of a significant recovery remains low. The main reason is that investors believe that the Bank of Japan (BoJ) will not raise interest rates this weekend, a factor that has weakened the yen in recent days. Meanwhile, expectations that the US Federal Reserve (Fed) will take a less dovish stance continue to push US bond yields higher, putting pressure on the low-yielding yen.

Despite the recent release of Japanese economic data such as Machinery Orders and Manufacturing PMI, the Yen did not receive much support. However, lingering geopolitical risks and concerns about US President-elect Donald Trump’s tariff policies could help the Yen maintain its safe-haven status. In addition, the US Dollar’s ​​slight decline, due to retreating US bond yields, also limited the upside in USD/JPY.

Japanese government data showed that machinery orders rose 2.1% in October from the previous month and 5.6% from a year earlier. Japan’s manufacturing PMI improved to 49.5 in December, but remained in contraction territory. In contrast, the services PMI rose to 51.4, bringing the composite PMI to 50.8 – higher than the previous month and indicating a slight improvement in the economy.

The BOJ’s Tankan survey last week also showed manufacturing confidence picked up in the final quarter of the year. Expectations that inflation will remain above its 2 percent target, the economy is growing steadily and wages are rising are putting pressure on the BOJ to consider raising interest rates.

However, many investors remain skeptical about whether the BoJ really wants to tighten monetary policy, putting further downward pressure on the Yen.

Meanwhile, the yield on the 10-year US Treasury note hit a three-week high on Friday, as expectations mount that the Fed will be cautious in cutting interest rates. More than 93% of traders believe the Fed will cut rates by another 25 basis points on Wednesday, according to CME Group's FedWatch tool. However, signs of slowing US inflation have increased the likelihood of a slower pace of rate cuts in 2024.

This week, the market focus will be on the Fed and BoJ meetings – which will determine the short-term trend of the USD/JPY pair.

According to Lao Dong, updated at 2:00 p.m. on December 16, the USD/JPY exchange rate is currently fluctuating around 153.652 USD/JPY, meaning 1 USD can be exchanged for about 153.5 JPY.