USDJPY:
Lower U.S. bond yields are driving profit taking in the dollar and favoring the yen.The U.S. dollar, which has risen for eight consecutive weeks, is retreating from its highest level since November 2022 as traders opt to lock in profits after an explosive rally following the U.S. election.
Despite stronger Japanese consumer inflation data and statements from BOJ Governor Kazuo Ueda, domestic political uncertainty may prevent the BOJ from tightening monetary policy.
The Japanese yen (JPY) is strengthening against its U.S. counterpart at the start of the new week. US Treasury bond yields fell sharply in response to the nomination of Scott Bessent as US Treasury Secretary. This, in turn, prompted traders to ease their bullish bets on the US Dollar (USD) after its recent rally to a two-year high and directed some flows towards the lower-yielding JPY.
Nevertheless, uncertainty surrounding the Bank of Japan’s (BoJ) rate hike plans, along with the prevalence of risk, could prevent any meaningful appreciation in the safe-haven JPY. In addition, expectations that US President-elect Donald Trump’s policies could lead to a resurgence in inflation and limit the Federal Reserve (Fed) from slowly cutting interest rates could be a tailwind for US bond yields. This, in turn, favors dollar bulls and should provide support to the USD/JPY pair.
Trade recommendation: Trading mainly with Buy orders from the current price level.
Origin: FreshForex
