Japanese Yen exchange rate situation last week
Last week, the Japanese Yen (JPY) witnessed many notable fluctuations in the foreign exchange market.
The yen rose earlier in the week amid heightened risk-off sentiment due to global geopolitical concerns. Military attacks in Ukraine, tensions in the Middle East, and new sanctions on Russia’s oil industry sent investors looking for safe havens, including the Japanese yen.
Expectations that the Bank of Japan (BoJ) could raise interest rates in the coming months also supported the value of the yen.
Domestic factors affecting the Yen
Inflationary pressures in Japan continued to mount, with producer prices rising for the 46th straight month to 3.8 percent year-on-year. However, household spending and real wages fell for the fourth straight month, suggesting the economy remains vulnerable to rising prices.
These factors increase the likelihood that the BoJ will raise interest rates by 0.25% at its policy meeting on January 23-24. However, some economists predict that the BoJ may wait until after the spring wage negotiations to act, keeping the yen's gains in check in the short term.
Impact from the US economy
In the US, new inflation data showed that the producer price index (PPI) and consumer price index (CPI) are cooling, raising expectations that the US Federal Reserve (Fed) could cut interest rates twice by the end of 2025.
US government bond yields fell, narrowing the yield gap with Japan, weakening the dollar and supporting the value of the yen. However, the positive jobs report and the Fed's hawkish stance continued to keep the dollar strong, putting pressure on the yen.
Exchange rate developments and outlook
The USD/JPY pair fluctuated between 155.20 and 157.50 over the past week, with the Yen gaining strongly mid-week on comments from BoJ Governor Kazuo Ueda that hinted at the possibility of a rate hike.
Technical support and resistance levels continue to play an important role in determining short-term trends, as the market awaits further economic data from the US and Japan.
