USD/JPY nears two-week highs at 156.90 after strong US jobs data in the early Asian session. The hawkish sentiment around US Fed rate decisions also lends support to the USD against the JPY.
The US non-farm job openings reached 7.67 million in October, exceeding expectations, indicating a resilient labour market and giving strength to the US Dollar. The Fed is anticipated to cut interest rates by 25 basis points soon, which would lower the federal funds rate to 3.50%-3.75%.
Fed Chair Jerome Powell’s Signal
Fed Chair Jerome Powell may signal a pause in future rate cuts during a press conference, which could maintain USD strength. Meanwhile, a recent earthquake in Japan has pressured the JPY, potentially affecting BoJ’s planned rate hike.
Traders are evaluating the earthquake’s impact as the BoJ meeting approaches on December 18-19. The bank’s decisions are crucial for the Japanese Yen due to its currency control mandates.
The differential between US and Japanese bond yields, driven by policy stances, continues to impact the JPY. Broader risk sentiment also influences its value, with the Yen serving as a safe haven in turbulent times.
US Dollar Strengthening Against Yen
We are seeing the dollar strengthen against the yen, pushing towards the 157.00 level ahead of the Federal Reserve’s decision later today. This move is supported by a resilient US labor market, a view reinforced by the strong November Non-Farm Payrolls report we saw last week which added 210,000 jobs. This momentum suggests the dollar has further room to run in the immediate short term.
The market has largely priced in a 25 basis point rate cut, but the key will be the Fed’s tone about future moves into 2026. A “hawkish cut,” where they signal a pause, could increase short-term volatility and support buying call options on the USD/JPY. This expected cut follows the gradual easing cycle we’ve seen from the Fed since it began cutting from over 5% in late 2024.
On the other side of the trade, the yen is weak due to the uncertainty following the recent 7.4 magnitude earthquake off the coast of Hokkaido. The full economic impact is unknown, which complicates the Bank of Japan’s upcoming decision. This situation suggests continued pressure on the yen for the time being.
Looking ahead to the Bank of Japan’s meeting on December 18-19, the market is now leaning towards them delaying any further rate hikes. We remember they only began their tightening cycle in March 2024, so a pause now would widen the interest rate gap with the US again. This potential for a significant policy divergence makes strategies that benefit from a continued rise in USD/JPY, such as long futures positions, look attractive for the coming weeks.
