The Japanese Yen held onto its intraday gains against the US Dollar on Wednesday. This comes as traders wait for the Federal Reserve’s policy decision. Speculation about more interest rate hikes by the Bank of Japan helped the Yen stay strong.
The Yen also benefited from the recent drop in US Treasury bond yields. The narrowing gap between US and Japan yields supported the Yen too. As a result, the USD/JPY pair fell towards the 155.00 mark.
Market participants are worried about how US President Donald Trump’s new trade policies could reignite inflation. On Monday, Trump announced plans to put duties on imported computer chips, pharmaceuticals, and metals. This is to encourage domestic production.
The announcement led to a small recovery in the US Dollar from a one-month low. Data from the US Census Bureau showed that Durable Goods Orders fell by 2.2% in December. This was more than the expected 0.8% rise.
The Conference Board’s Consumer Confidence Index also dropped to 104.1 in January from 109.5 before.
yen strengthens amid Fed anticipation
Minutes from the Bank of Japan’s December meeting highlighted the members’ cautious stance on monetary policy changes.
There is growing confidence that the Bank of Japan will keep moving towards normalization. More interest rate hikes are expected in 2025. Hopes of big wage hikes in Japan’s spring wage negotiations also support this outlook.
On the other hand, the Federal Reserve is expected to lower borrowing costs twice by the end of the year. Investors are eagerly waiting for the outcome of the two-day Federal Open Market Committee meeting. This will have a big impact on USD price movements and the USD/JPY pair.
Technical indicators point to a bearish trend for USD/JPY. The breakdown below a multi-month rising channel reinforces this outlook. A decisive break below the 155.00 mark could speed up the downward movement towards 153.70 and eventually 153.00.
However, any upward move beyond 156.00 might be seen as a chance to sell. Going forward, the Federal Reserve’s upcoming decision will be key in setting the near-term direction for the USD/JPY pair. Market participants will closely analyze the Fed’s stance on future interest rates.