The Japanese yen ended 2023 trading on a high as selling pressure on the US dollar index (DXY) gained strength. As a result, the USD/JPY exchange rate fell to a low of 140.79 on Friday, its lowest level since August and well below its year-to-date high of 151.80. Overall, the USD/JPY exchange rate will be the currency pair to watch in 2024 as investors continue to monitor the actions of the Bank of Japan (BoJ). Therefore, the bank has maintained a relatively dovish tone in 2023 even as other central banks have raised interest rates.
In the United States, the Federal Reserve raised US interest rates to their highest level in more than two decades. Similarly, the European Central Bank pushed interest rates to their highest level ever. Other central banks such as the Bank of England (BoE) and the Swiss National Bank (SNB) also raised interest rates in 2023.
On the other hand, the Bank of Japan kept interest rates in the negative zone. The only hawkish thing happened a few months ago when it widened the range of its 10-year bond yields. Therefore, traders will focus on what the bank will do in 2024. Some economists see the bank raising interest rates, a move that will see it emerge from the sub-zero level. If this is true, it will happen at a time when other banks such as the US Federal Reserve and the European Central Bank will cut interest rates.
In its last decision for the year 2023, the Federal Reserve indicated three cuts in US interest rates in 2024, and analysts believe that it could achieve more cuts during the year. Furthermore, officials are relieved that inflation in America is on a downward trend.
Last Thursday, US dollar sentiment rebounded despite a higher-than-expected number of initial unemployment claims in the week ending December 23. Supporting the recovery was an increase in US bond yields: 7-year US Treasury yields rose from 3.837% to 3.859% in a $40 billion bond auction. The dollar lost some of its gains, before rising again on Friday. The bearish market mood supported the currency as markets were wary of domestic and global political developments. Obviously, when Russia began a new missile attack against Ukraine, former US President Donald Trump was ready to return it to the primary ballot in Colorado.
On another level, the interest rate hike by the Bank of Japan will also occur at a time when inflation in Japan is moving lower. Finally, the latest data revealed that inflation in the country fell sharply in November and that this trend could continue. Core CPI came in at 2.5%, the slowest growth rate since 2022.
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USD/JPY Technical analysis and Expectations Today:
The USD/JPY exchange rate has been on a strong downtrend in the past few weeks. As it fell, the pair moved below the 50-day and 200-day Exponential Moving Averages (EMA). If this trend continues, the pair will likely form a death cross pattern. Also, it moved below the key support level at 145.08, its highest point on June 29. Therefore, expectations are that the USD/JPY will continue to decline in 2024 as sellers target the key support level at 137.17, its swing low on July 14. The stop loss for this deal will be at 145.08.
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