Yen Appreciation Watch: Focus on USD Movement Post-U.S. Retail Sales
Market Recap from Yesterday
- USD/JPY dropped sharply from the 158 range to the 155 range.
- Reason 1: Yen buying driven by expectations of a BOJ rate hike in next week’s monetary policy meeting.
- Reason 2: U.S. Core CPI YoY fell short of expectations, prompting USD selling.
The pair reached as low as 155.21 in the morning amid continued dollar weakness and yen strength. However, the yen’s rally stalled in the afternoon, allowing USD/JPY to recover to the 156 range.
Key Upcoming Events Next Week
- Trump Inauguration Ceremony (Monday)
- A smooth event could heighten speculation of a BOJ rate hike.
- Market probability of a rate hike exceeds 80%.
- BOJ Monetary Policy Meeting (Thursday–Friday)
- Expectations for a rate hike are underpinning yen buying.
USD/JPY Outlook
- Although USD/JPY recovered to the 156 range in Tokyo afternoon trading, caution remains high regarding yen appreciation. Limited upside for USD/JPY is expected in the London session.
- The focus shifts to the U.S. Retail Sales data at 10:30 PM JST. If the results align with expectations, dollar weakness may pause, pushing USD/JPY toward the mid-156 range.
U.S. Retail Sales Forecast (December)
- MoM: +0.6% (previous: +0.7%)
- Despite the tapering of post-hurricane auto replacement demand, sales remain robust.
- Excluding autos: +0.5% (previous: +0.2%)
- Results meeting expectations could provide support for USD/JPY.
Other Currency Movements
- EUR/USD:
- Following U.S. CPI, the euro surged to the 1.0350 range before falling back to 1.0260, reflecting unstable movements.
- Caution remains on further upside, as markets await Trump’s inauguration.
- Cross Yen Pairs:
- Although steady in the near term, volatility is likely to persist.
Key Points to Watch Today
- 10:30 PM U.S. Retail Sales Data
- A stronger-than-expected figure could strengthen the dollar, potentially pushing USD/JPY above the mid-156 range.
- Conversely, weaker results might accelerate dollar weakness and yen appreciation.
- Yen Buying Ahead of BOJ Meeting
- Yen appreciation is expected to continue in anticipation of the BOJ meeting, likely capping USD/JPY upside.
Summary
With next week’s BOJ meeting and Trump’s inauguration looming, market conditions remain volatile. Today’s key event is the U.S. Retail Sales release, which could significantly influence USD/JPY. Keep a close watch on yen appreciation risks and look for optimal entry points to navigate this uncertain market.
