USD/JPY Eases as Risk Sentiment Wanes, Fails to Breach Key Resistance
USD/JPY posted a modest loss Friday, trading within a narrow range of 157.35-157.96 on EBS, as a souring risk appetite weighed on the pair. A steeper U.S. Treasury yield curve and declines in equity indexes added to the pressure, although year-end dollar buying helped limit losses. The pair remains close to overbought territory after an eight-day run of higher lows, yet it failed to breach the key 158 level following renewed warnings from Japan’s Finance Minister Kato about yen weakness. Speculation about a potential BOJ rate hike in January, fueled by Tokyo CPI data and the December meeting minutes, also contributed to the cautious tone.
Technically, USD/JPY is consolidating below critical resistance levels, with 158.09 (Thursday high) and 158.45 (April 26 high) presenting formidable barriers. Support is seen at 157.09, the Dec. 26 low, with a break below potentially exposing 156.50. The pair remains buoyed by year-end demand, but its inability to sustain upward momentum near 158 suggests waning bullish strength. Any sustained rally would require a decisive break above 158.45, while a slide below 157.09 could signal a broader pullback.
Looking ahead, traders will focus on the Jibun Bank Manufacturing PMI for December, released Monday, for insights into Japan’s economic health. Further yen strength may emerge if data supports speculation of a BOJ rate hike, particularly as the central bank cuts monthly JGB purchases by another ¥410 billion. Conversely, if risk sentiment improves or U.S. yields rise further, USD/JPY may retest resistance near 158, with potential for upside gains into the new year.