USD/JPY extends its losses for the third consecutive session on New Year’s Eve. It’s trading around 156.20 during the early European hours on Tuesday. Meanwhile, the Japanese Yen (JPY) is set to decline more than 10% against the US Dollar (USD) in 2024, which would mark its fourth straight year of weakening.
Reasons for USD/JPY’s Downside
BoJ Rate Hike Expectations
The pair’s downside is due to the strengthening of the Japanese Yen (JPY). Traders are assessing the market sentiment that the Bank of Japan (BoJ) may raise interest rates in January. This follows the release of the Tokyo Consumer Price Index (CPI) inflation data last week. In December, the headline Tokyo CPI inflation rose to 3.0% YoY, up from 2.6% in November. The Tokyo CPI excluding Fresh Food and Energy increased to 2.4% YoY, compared to 2.2% the previous month. Also, the Tokyo CPI excluding Fresh Food climbed 2.4% YoY, slightly below the expected 2.5% but higher than the 2.2% recorded in November.
Impact of Treasury Yields
The USD/JPY pair also faces challenges as the US Dollar loses ground because of weaker Treasury yields. The US Dollar Index (DXY), which tracks the USD against six major currencies, remains soft around 108.00 as US Treasury bond yields fell by approximately 2% on Monday. The 2-year and the 10-year yields stood at 4.24% and 4.53%, respectively.
Outlook for the US Dollar
The downside risks for the US Dollar seem restrained. The Federal Reserve (Fed) may adopt a more cautious tone regarding potential rate cuts in 2025. This signals a shift in its monetary policy approach. It comes amidst uncertainties related to the economic strategies expected under the incoming Trump administration.
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