Japanese Yen Shows Resilience after Friday’s Dip, But Challenges Remain

• The Japanese Yen is making a comeback and recovers some of last week’s heavy losses.
• The Bank of Japan’s negative rates regime might not end in January, which could limit the Yen’s gains.
• Reduced expectations for aggressive Fed easing support the USD and USD/JPY pair.

The Japanese Yen (JPY) is edging higher against the US Dollar as a new week begins, but it remains close to a three-week low reached on Friday. With an earthquake on New Year’s Day and a Japanese holiday, hopes for an end to the Bank of Japan’s negative rates regime have been dashed. Meanwhile, the stable performance in equity markets contributes to undermining the safe-haven JPY.

The US Dollar (USD), on the other hand, is gaining support from reduced expectations of more aggressive policy easing by the Federal Reserve (Fed). Mixed macro data from the US on Friday has affected USD bulls, but the USD/JPY pair is still trading with a positive bias during the Asian session thanks to this fundamental backdrop.

Daily Digest Market Movers: Japanese Yen seems vulnerable on fading hopes of a hawkish BoJ pivot

• The Japanese Yen declined over 2% last week, recording its worst weekly performance since June 2022 due to fading hopes for a policy shift by the Bank of Japan later this month.
• A strong December US jobs report adds uncertainty over the Federal Reserve’s rate cuts trajectory, supporting the US Dollar and lifting the USD/JPY pair to a three-week high on Friday.
• The upbeat US jobs data was offset by a decline in the US services sector, although US Factory Orders showed a more positive picture, hinting at some economic weakness but overall resilience in the world’s largest economy.
• Investors have scaled back bets for more aggressive easing by the Federal Reserve, underpinning the USD.
• Dallas Fed President Lorie Logan noted that maintaining sufficiently tight financial conditions is crucial for the US central bank.

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