The US Dollar strengthened against the Japanese Yen as President Trump threatened new tariffs on Chinese and European goods. The Bank of Japan's potential rate hike had a limited impact on the Yen despite improving wage growth and inflation.
The USD/JPY exchange rate surged in early North American trading, propelled by President Trump 's renewed trade tensions with China, Europe, Canada, and Mexico. Trump 's indication of imposing 10% tariffs on Chinese goods starting February 1st, coupled with potential duties on European products, fueled a recovery in the US Dollar. This upward momentum, combined with the stability of the US 10-year Treasury bond yield at 4.58%, pushed the USD/JPY above the 156.00 mark, marking a 0.41% gain.
The US Dollar Index (DXY), which gauges the performance of the US Dollar against a basket of six major currencies, remained unchanged at 108.13. Despite speculation surrounding a potential rate hike by the Bank of Japan (BoJ) at its January 23-24 meeting, the Japanese Yen softened slightly. The BoJ appears poised for a rate increase as Japanese retailers are implementing wage hikes for the second consecutive year, driven by rising inflation and labor shortages.On the economic data front, the US calendar remains relatively quiet. In Japan, the Balance of Trade for December is anticipated to narrow the deficit to ¥-55B from ¥-117.6B. Technically, the USD/JPY recovered from a weekly low of 154.76, avoiding a test of a four-month-old support trendline originating from October 2023's lows of 139.56. However, buyers took control, propelling the exchange rate past the 155.00 and 156.00 levels, aiming for the Tenkan-sen at 156.82. A successful break above this level could pave the way for a move towards 157.00 followed by the January 14 daily high of 158.20. Conversely, if the USD/JPY declines below 156.00, support could be found at 155.00, followed by the January 21 swing low of 154.76
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