Japanese Yen Breaks Through 155.00 Against USD for the First Time Since July 30

JPY Drops to Multi-Month Low Amid Persistent Weakness

The Japanese Yen (JPY) extended its decline for the third consecutive day on Wednesday, pushing the USD/JPY pair above the significant 155.00 psychological mark during early European trading. This represents a fresh multi-month low for the JPY, which remains under pressure due to multiple factors despite stronger-than-expected domestic data.

USD/JPY Daily Price Chart

Source: TradingView, prepared by Richard Miles

BoJ Rate-Hike Uncertainty Overshadows Positive PPI Data

The latest data from the Bank of Japan (BoJ) indicated that Japan’s Producer Price Index (PPI) rose by 3.4% in October year-on-year and by 0.2% on a monthly basis. These readings exceeded expectations and pointed to a potential uptick in demand-driven inflation. However, concerns about the impact of a weaker Yen on household spending tempered any potential boost from the stronger PPI.

Political uncertainty within Japan further clouds the outlook for BoJ policy tightening. The perception that Japan’s fragile minority government may struggle to support further rate hikes continues to undermine the JPY. This uncertainty, coupled with worries over potential protectionist tariffs promised by US President-elect Donald Trump, exerts additional downward pressure on the currency.

Elevated US Bond Yields and Bullish USD Weigh on JPY

The USD has maintained strength near its highest level since April, buoyed by elevated US Treasury yields and expectations of limited Fed easing. Anticipation of President-elect Trump’s expansionary policies—which could fuel inflation—supports the view that the Fed will be cautious about aggressive rate cuts. This backdrop favors USD strength, drawing flows away from lower-yielding currencies like the JPY.

Fed Officials’ Comments and Rate Outlook

Richmond Fed President Tom Barkin commented on Tuesday that while inflation seems to be easing, it may still remain above the central bank’s target, creating uncertainty around labor market stability. Similarly, Minneapolis Fed President Neel Kashkari expressed caution, noting that although progress has been made in addressing transitory inflation, it is premature to declare victory.

According to the CME Group’s FedWatch Tool, traders are pricing in less than a 60% probability of a 25-basis-point rate cut and around a 40% chance of an on-hold decision at the December FOMC meeting. This conservative outlook on Fed policy continues to underpin USD strength.

Outlook and Key Factors

The combination of elevated US bond yields, bullish USD sentiment, and uncertainties surrounding the BoJ’s policy path paints a challenging picture for the JPY. While Japan’s stronger-than-expected PPI data offers some positive news, it is overshadowed by broader concerns, including the potential impact of weaker JPY on consumer spending and political hurdles for the BoJ.

Additionally, the cautious market mood and potential for BoJ intervention could provide some support for the Yen and limit further losses in the USD/JPY pair. However, much will depend on the outcome of the US CPI data due later in the day, which could set the tone for the near-term direction of the USD/JPY.

Summary of Key Influences:

• Stronger Japanese PPI: Provides temporary support but offset by broader concerns.
• BoJ Policy Uncertainty: Political and economic challenges may hinder further rate hikes.
• US Bond Yields and USD Strength: Elevated yields support USD while weighing on JPY.
• Fedspeak and Rate Speculation: Diverging views among Fed officials contribute to market caution.
• Potential US Tariffs: Trump’s protectionist measures could add pressure on JPY.

The Japanese Yen remains vulnerable near multi-month lows, pressured by BoJ uncertainty and a robust USD. With US CPI data on the horizon, the USD/JPY pair could experience further movement depending on inflation outcomes and subsequent market reactions. Any signs of intervention or unexpected shifts in policy could add complexity to the currency pair’s trajectory in the days ahead.