Japanese Yen continues to increase strongly against USD and may increase further
According to FXStreet, on February 5, the Japanese Yen (JPY) is holding a significant increase for the day, although it decreased slightly but reached its highest level since mid-December last year. The main reason is that newly released data shows that real wages in Japan are increasing, raising expectations that the Bank of Japan (BoJ) will continue to raise interest rates.
This is in complete contrast to the prediction that the US Federal Reserve (Fed) will cut interest rates twice this year. It is this difference in monetary policy that has helped the Japanese Yen strengthen against the USD.
However, the market is still concerned that Japan could become the target of US President Donald Trump's tax.
Optimism in the market has also led investors to pay less attention to safe-haven assets such as the JPY. However, with a solid foundation and a weakening of the USD, the Japanese Yen still has the opportunity to continue to increase.
Why has the Japanese Yen increased the most since the beginning of the year?
New data shows that Japan's real wages increased by 0.6% in December compared to the previous year. Last month's figures were also revised up from 0.3% to 0.5%.
In addition, inflation in Japan increased to 4.2% in December - the highest level since the beginning of 2023. This increases the likelihood that the BoJ will continue to raise interest rates, thereby making the Japanese Yen more attractive.
Mr. Kazuhiro Masaki, a senior official of the BoJ, said that the central bank sees inflation gradually moving towards the 2% target, while service prices continue to increase. He also noted that prices after the pandemic are largely affected by rising input costs.
In addition, business activities in the Japanese service sector have grown for the third consecutive month, with the PMI increasing from 50.9 to 53.0 - the highest level since September 2024.
Meanwhile, the US labor market showed signs of weakening as the latest report showed the number of unemployed jobs in December fell to 7.6 million, lower than expected. This could force the Fed to continue cutting interest rates, contrary to the BoJ's policy, weakening the USD against the JPY.
Vice President of the Fed, Mr. Philip Jefferson, said that there is no need to rush to cut interest rates because the US economy is still strong. However, he also acknowledged that interest rates may decrease in the medium term and the Fed is facing many uncertainties from government policies.
In another development, President Trump has delayed the imposition of a 25% tariff on Canada and Mexico for another 30 days. This, along with expectations of progress in US-China trade negotiations, has helped market sentiment become more positive.
However, investors are still concerned that Japan could be Trump's next target in tariff policies. Japanese Prime Minister Shigeru Ishiba is expected to meet Trump this weekend, and this meeting could further clarify this risk, especially given Japan's large trade surplus with the US.
Investors are now awaiting important economic data from the US, including the private sector employment report and the services PMI index. The data will impact the dollar before the Non-farm Payrolls report is released on Friday.
According to Lao Dong at 12:00 on February 5, 2025, the Yen decreased to 153.522 USD/JPY, meaning 1 USD could be exchanged for about 155 JPY.
