On Monday (December 30th), during the European trading session, the fluctuation of USD/JPY is relatively small, and the exchange rate remains stable. Affected by market expectations that the Bank of Japan may raise interest rates in January next year, the yen has gained some support, mainly due to the Tokyo Consumer Price Index (CPI) inflation data released last week.

In December, Japan's Jibun Bank Manufacturing Purchasing Managers' Index (PMI) reached 49.6, slightly higher than the initial value of 49.5 and also higher than November's 49.0. Although this is the highest level since September, the index still shows manufacturing activity contracting for the sixth consecutive month.

The Nikkei 225 index fell to around 39950 points on Monday, ending its two-day uptrend. This decline is mainly affected by a slight decline in US stock index futures, which is related to the sell-off on Wall Street last Friday due to the rise in US bond yields and the Federal Reserve's more cautious expectations of interest rate cuts in 2025.

Meanwhile, the US dollar index is currently hovering around 108.00. The US dollar is under pressure due to the decline of US treasury bond bond yield. Specifically, the yields of 2-year and 10-year US Treasury bonds are 4.30% and 4.59%, respectively. Nevertheless, the market's expectation that the Federal Reserve may reduce the frequency of interest rate cuts next year may provide some support for the US dollar. The market is still digesting the hawkish signals from the Federal Reserve, which lowered its benchmark interest rate by 25 basis points at its December meeting and showed expectations of two rate cuts next year in the latest dot matrix.

In terms of inflation, the Tokyo CPI data showed strong performance. The Tokyo CPI rose to 3.0% year-on-year in December, higher than November's 2.6%. Excluding fresh food and energy, Tokyo's core CPI increased by 2.4% year-on-year, higher than November's 2.2% and slightly lower than market expectations of 2.5%.

Last Friday, Japanese Finance Minister Katsuyuki Kato stated that unilateral and intense foreign exchange fluctuations have been observed recently. He further stated that the government will take appropriate measures against excessive foreign exchange fluctuations. In addition, the summary of opinions from the December monetary policy meeting released by the Bank of Japan shows that if economic conditions meet expectations, the central bank plans to adjust its easing measures. One central bank director emphasized the need to closely monitor wage negotiation trends, while another emphasized the need to carefully analyze data to determine whether to adjust monetary policy.

The recently released minutes of the Bank of Japan's October meeting reiterated that if the inflation trend meets expectations, the Bank of Japan may gradually raise interest rates and is expected to raise them to 1.0% by the end of fiscal year 2025. Meanwhile, the minutes emphasized the importance of adopting a cautious monetary policy amidst domestic and international uncertainty, as well as addressing deflationary pressures through wage driven economic growth and fiscal measures.

Bank of Japan Governor Kazuo Ueda stated earlier this month that the central bank expects the Japanese economy to be closer to achieving a sustainable 2% inflation target next year. He also added, "The timing and pace of adjusting the degree of monetary easing will depend on the development of economic activity, prices, and financial conditions

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

The USDJPY exchange rate remained around 157.80 on Monday, showing bullish momentum and in an upward channel on the daily chart. From a technical perspective, the 14 day Relative Strength Index (RSI) hovered below 70, supporting the current bullish trend. However, if the RSI breaks through 70, it may indicate that the market is overbought, triggering a downward correction.

In terms of resistance, the USDJPY may retest the monthly high of 158.08 set on December 26th. If this level can be effectively broken through, the exchange rate is expected to further rise, with the target pointing towards the upper edge of the upward channel, which is 160.60.

In the short term, the support for USDJPY is located near the 9-day moving average of 156.79, followed closely by the lower support level of the uptrend channel at 156.50. If it falls below this support zone, it may open up space for further pullbacks.

Overall, the USD/JPY trend is influenced by both expectations of interest rate hikes from the Bank of Japan and hawkish signals from the Federal Reserve, and may continue to fluctuate in the short term.