The Japanese yen (JPY) lost 0.76% on Wednesday as the U.S. Dollar Index (DXY) corrected upwards following a better-than-expected Consumer Sentiment report and a smaller-than-expected increase in Jobless Claims numbers.
Possible effects for traders
USDJPY has been rising since 21 November after the FOMC minutes revealed the Federal Reserve (Fed) monetary policy would remain ‘cautiously restrictive.’ Conversely, the Bank of Japan’s (BOJ) monetary policy is extremely loose, which is the main reason USDJPY has been in a major uptrend for the past three years. Still, the market speculates that BOJ may be preparing for a tightening campaign. ‘If next year’s annual wage negotiations heighten prospects of inflation sustainably hitting its 2% target, the bank may end its negative interest rate policy in April,’ the central bank’s former Executive Director Kazuo Momma said. Increasing interest rate expectations will support the Japanese yen, which has been under pressure lately after a truce between Israel and Hamas capped gains potential due to USDJPY’s status as a safe-haven asset.
USDJPY fell during the early European trading session. Trading activity will be minimal today across foreign exchange markets due to the Thanksgiving holiday. However, the Japanese inflation data release today at 11:30 p.m. UTC will be vital for short-term directional guidance for currency pairs. The data could also influence current projections for rate hikes, which are anticipated to begin in late 2024. If the inflation data comes out stronger than expected, USDJPY may drop below 147.00. However, lower-than-expected figures may push the pair towards 150.00 again.
