The Japanese Yen is appreciating against the US Dollar on Monday, fueled by trader bets that the Bank of Japan will raise interest rates in January. Economic data from Japan shows a slight improvement in manufacturing activity, while the US Dollar weakens amidst declining Treasury yields.
The Japanese Yen (JPY) is strengthening against the US Dollar (USD) on Monday as traders anticipate the Bank of Japan (BoJ) to increase interest rates in January after last week's release of Tokyo Consumer Price Index (CPI) inflation data. Japan's Jibun Bank Manufacturing PMI reached 49.6 in December, slightly surpassing the flash estimate of 49.5 and improving from 49.0 in November.
Although marking the highest level since September, it still indicates the sixth consecutive month of declining factory activity. The Nikkei 225 fell to around 39,950 on Monday, ending two days of gains. The decline followed a slight drop in US futures, following Friday's Wall Street slump driven by rising Treasury yields and indications of more restrained interest rate cuts in 2025. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades around 108.00. The Greenback faces challenges as US Treasury bond yields depreciate on Monday. 2-year and 10-year yields stand at 4.32% and 4.62%, respectively, at the time of writing. The US Dollar may gain support from growing expectations of fewer rate cuts next year by the US Federal Reserve (Fed). Traders continue to digest the Fed’s hawkish pivot. The Fed cut its benchmark interest rate by a quarter point at the December meeting, and the latest Dot Plots indicated two rate cuts next year. The headline Tokyo CPI inflation rose to 3.0% YoY in December, up from 2.6% in November
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