Mainly due to market speculation that the Bank of Japan will keep interest rates unchanged at its December meeting, the yen failed to attract sustained buying. In addition, due to market expectations that the Federal Reserve will adopt a more cautious stance and delay interest rate cuts, US bond yields remain high, further weakening the prospects for a low yield yen.

Note: All dates mentioned in this article are in Beijing time.

However, yen bears may not place large bets and instead choose to remain on the sidelines until the risks of key central bank events are announced. The Federal Reserve will announce its interest rate decision this Thursday, and the Bank of Japan will also release its latest policy update on the same day. Prior to this, ongoing geopolitical risks, global trade concerns, and risk sentiment may provide some support for the yen, which to some extent limits the potential for further appreciation of the USD/JPY.

Doubts about the Bank of Japan's interest rate hike plan, insufficient attractiveness of the yen

According to data released by the Japanese Ministry of Finance, Japan's trade deficit unexpectedly improved in November, recording 117.6 billion yen, a significant narrowing from 462.1 billion yen in October. This improvement is mainly due to strong export growth, with exports increasing by 3.8% year-on-year in November, benefiting from the weakening of the yen and the rebound in demand from major trading partners such as the United States. However, the year-on-year decrease of 3.8% in imports has to some extent weakened the positive impact of trade data. Meanwhile, the market generally expects the Bank of Japan to maintain interest rates unchanged this week, which has attracted new yen selling and further put pressure on the yen.

At the same time, the US released strong retail sales data for November, demonstrating economic resilience. The US Department of Commerce reported that retail sales increased by 0.7% month on month in November, higher than the 0.5% growth in October. However, retail sales performance after excluding cars was slightly lower than expected, with only a 0.2% increase. This data pushed the yield of the US 10-year treasury bond bond to the highest level since November 22, further strengthening the market's expectation of steady growth of the US economy.

Although the market's expectation of the Fed's third 25 basis point rate cut on Thursday has limited impact, the progress of inflation returning to the Fed's 2% target has led to speculation that the Fed may adopt a more cautious attitude and pause the rate cut cycle at its policy meeting in January next year. Therefore, the market is closely monitoring the latest economic forecasts from the Federal Reserve (including the dot matrix) and Chairman Powell's remarks at the press conference to find more clues about the future path of interest rates.

Afterwards, the market focus will quickly shift to this Thursday's key policy decision by the Bank of Japan. The stance and policy outcomes of the Bank of Japan are expected to provide new direction guidance for the US dollar/Japanese yen exchange rate, further affecting market expectations for the yen's trend.

In terms of technology, analyst Menghani provided the following interpretation:

From a technical perspective, buying on dips combined with breaking through the important 200 day moving average is beneficial for bullish traders. In addition, the volatility indicators on the daily chart continue to gain upward momentum and are still far from the overbought range, indicating that the resistance to the upward path of the US dollar/Japanese yen is minimal. However, further upward movement may encounter resistance around 154.00, followed by the 154.45-154.50 area, which is a three week high. If the above resistance continues to break through, it will pave the way for the exchange rate to return to the psychological level of 155.00, with a further upward target of 155.50;

On the downside side, the 153.15 area (overnight low) appears to be a short-term support level. If it further falls below the 153.00 level, the US dollar/Japanese yen may retreat to the support area of the 200 day moving average (around 152.15). If the support level cannot be held, market sentiment may turn bearish, driving the exchange rate to further accelerate its decline, with a target of the 151.00 integer level or even the 150.00 psychological level.