USD/JPY is close to two-week highs at 156.90, following strong US jobs data released in the early Asian session. This positive news, combined with hawkish feelings around US Fed rate decisions, supports the USD against the JPY. In October, US non-farm job openings reached 7.67 million, surpassing expectations and showing a strong labor market. This boost strengthens the US Dollar. The Fed is expected to cut interest rates by 25 basis points soon, lowering the federal funds rate to between 3.50% and 3.75%.

Fed Chair Jerome Powell’s Signal

Fed Chair Jerome Powell may hint at a pause in future rate cuts during a press conference, which could help maintain USD strength. Additionally, a recent earthquake in Japan has put pressure on the JPY, potentially affecting the Bank of Japan’s plans for a rate hike. As traders assess the earthquake’s effects, all eyes are on the BoJ meeting scheduled for December 18-19. Their decisions are important for the Japanese Yen, given their currency control responsibilities. The difference between US and Japanese bond yields, due to their differing policy stances, continues to affect the JPY. The broader risk sentiment also plays a role, making the Yen a safe haven during uncertain times.

US Dollar Strengthening Against Yen

The US dollar is gaining strength against the yen, moving towards the 157.00 level ahead of the Federal Reserve’s decision later today. This trend is backed by a strong US labor market, as highlighted by last week’s robust November Non-Farm Payrolls report, which added 210,000 jobs. This momentum suggests the dollar may rise further in the short term. The market has largely anticipated a 25 basis point rate cut, but the Fed’s tone about future decisions into 2026 will be critical. A “hawkish cut,” indicating a pause, could lead to short-term volatility and encourage buying call options on the USD/JPY. This expected cut follows the Fed’s gradual easing cycle, which started when rates were over 5% in late 2024. On the flip side, the yen is under pressure due to uncertainty after the recent 7.4 magnitude earthquake off Hokkaido. The full economic impact remains unclear, complicating the Bank of Japan’s upcoming decisions. This situation suggests that the yen may continue to face pressure for now. Looking toward the Bank of Japan’s meeting on December 18-19, the market aligns with the expectation that they may delay any rate hikes. Since they only began tightening in March 2024, a pause now could widen the interest rate gap with the US again. This potential for a significant policy divergence makes strategies that benefit from a rising USD/JPY, like long futures positions, attractive in the upcoming weeks. Create your live VT Markets account and start trading now.

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