On Friday, the USD/JPY remained strong due to the widening interest rate differential between the US and Japan and the weak performance of the Japanese economy. Despite the market's risk aversion and the possibility of Japan intervening in the foreign exchange market providing some support, the hawkish stance of the Federal Reserve and the strong US dollar still dominate the trend. Technically, the exchange rate tends to be bullish in the short term, with resistance levels at 158.55, 159.00, and 160.00; The support levels below are 157.55, 157.00, and 156.75. Non farm data may inject new momentum into the market, and the resilience of the US dollar/Japanese yen remains strong in the short term.

Fundamental analysis

On Friday (January 10th), the performance of the Japanese yen remained weak during the European session, with the USD/JPY exchange rate remaining below the multi month high reached earlier this week. Despite the expansion of inflationary pressures in Japan, the market remains skeptical about expectations of when the Bank of Japan will raise interest rates again. In addition, the hawkish policy shift of the Federal Reserve has led to the widening of the US Japan interest rate differential, which has become another major factor driving down the yen.

However, analysts believe that the market's cautious sentiment, trade risk concerns, and ongoing risks such as geopolitical conflicts may provide some support for the safe haven currency, the Japanese yen; In addition, speculation in the market that Japanese authorities may intervene in the market to support the local currency may deter yen bears from making aggressive bets. However, with the support of a strong US dollar and the market waiting for the release of the US non farm payroll report data, the downward space for the US dollar/yen seems to be limited.

From the fundamentals of the Japanese economy, the selling sentiment of the yen has not eased. Japanese Minister of Economic Revitalization, Ryohei Akazawa, stated that the Japanese economy is in a "critical stage" of eliminating public expectations of deflation and attempting to enter a growth phase driven by higher wages and investment. However, the data on household spending in Japan is worrying. According to government data released, Japan's inflation adjusted household expenditure (an important indicator of private consumption) decreased by 0.4% year-on-year in November last year, marking the fourth consecutive month of decline. This result reflects the negative impact of sustained high prices on household expenditures.

At the same time, Japan's real wages also fell for the fourth consecutive month in November last year, further indicating that inflationary pressures are expanding. This situation provides a reason for the Bank of Japan to raise interest rates again in January or March. However, some analysts believe that the Bank of Japan may wait until April to confirm whether the momentum of wage growth will continue in the spring wage negotiations between businesses and unions before deciding whether to take action.

On the other hand, the US economy has provided strong support for the US dollar. The hawkish attitude of the Federal Reserve after its meeting in December last year made the yield of 10-year US treasury bond bonds close to the highest level since the middle of last year. Several Fed officials have mentioned in their speeches that the process of achieving the 2% inflation target is longer than expected. Boston Fed President Susan Collins stated that the US economy is gradually and unevenly returning to its 2% inflation target, and believes that future interest rate adjustments will require "gradual and patient" progress. Philadelphia Fed President Patrick Huck pointed out that although the Fed expects to continue cutting interest rates, the path will depend entirely on the data. Kansas Federal Reserve Chairman Jeffrey Schmid emphasized that although growth is showing momentum and the labor market remains healthy, future interest rate cuts should be gradual and data-driven.

Overall, analysts believe that the strong US dollar contrasts sharply with the weak performance of Japan's economic data, providing solid support for the US dollar/Japanese yen. The US dollar is approaching a two-year high, providing momentum for the US dollar/Japanese yen to remain stable above 158.00.

Technical analyst interpretation:

From a technical perspective, the short-term trend of USD/JPY still tends to be bullish, but recent range fluctuations indicate that further bullish positioning may need to wait until more obvious buying push appears. At present, the 158.55 area (a multi month high hit on Wednesday this week) may become a direct resistance level, and once it breaks through, the US dollar/Japanese yen may further test the 159.00 level.

If the upward movement can continue, the exchange rate may further test the resistance level of 159.45 and eventually reach the psychological level of 160.00. From the perspective of market momentum, testing in this range may become a short-term upward target for the US dollar/Japanese yen.

On the downside side, the overnight low point (157.60-157.55 area) may continue to serve as an important support level in the near future. If there is further selling pressure on the US dollar/Japanese yen, it may accelerate its decline towards the 157.00 level and further explore the next key support area of 156.75, as well as the low point of 156.25-156.20 this week. If the support level of 156.00 is effectively broken, it may indicate that the short-term trend is biased towards bears, opening up deeper downward space.

The technical aspect of USD/JPY still supports bulls, but the current volatile trend shows that bulls need stronger driving force to further advance. At the same time, the stability of the support level below will become a key test for whether bears can open up downward space.

summary

Despite some complex factors in market sentiment and fundamentals, the US dollar/Japanese yen still exhibits strong resilience. From a fundamental perspective, the trend of widening interest rate differentials between the US and Japan has not changed, while from a technical perspective, it suggests that bulls still have an advantage. With the release of non farm employment data, the market may usher in new momentum.