The Sustainability of Yen Appreciation May Be Limited
2025-01-29
■ The US government recognizes the status of the US dollar as the global reserve currency and will tolerate a stronger dollar in the short term.
■ Even if risk sentiment deteriorates, the sustainability of the yen's appreciation is still limited, and the USD/JPY exchange rate may be supported in the 152-153 yen range.
This morning in the Asian session, the USD/JPY appreciated by about 1 yen from the closing price of the US market on the 27th, rebounding to a high of 155 yen. The trigger for this change was that the US Senate approved the nomination of Scott Bessent as Treasury Secretary with a majority vote in favor. According to the Financial Times, Bessent advocated a uniform 2.5% tariff on US imports and planned to increase the tariff gradually month by month. In addition, US President Trump said that he was inclined to set the uniform tariff "much higher" than 2.5%, further promoting the strength of the US dollar.
At the Senate nomination hearing on the 16th, Bessent emphasized that "ensuring the status of the US dollar as a global reserve currency is vital" and expressed respect for the independence of the Federal Reserve (FRB). In his early days in office, President Trump also aligned himself with Bessant’s position and appears to be tolerant of a stronger dollar in the short term to avoid financial market turmoil. Although the BRICS countries (BRICS) such as Brazil and China are discussing the creation of a common currency and have set off a global trend to reduce reliance on the dollar, the dollar’s dominance in the international system will remain difficult to shake in the short term.
Since December last year, the appreciation trend of the dollar against the yen has been adjusting. If risk sentiment deteriorates as it did yesterday, the dollar against the yen may fall back. However, as the Bank of Japan is expected to continue to raise interest rates at a moderate pace until the neutral interest rate level, the sustainability of the yen’s appreciation may be limited in the context of the possibility that real interest rates will remain negative for a long time. The Federal Open Market Committee (FOMC) of the Federal Reserve is expected to keep the policy rate unchanged from today to tomorrow, so the market will pay close attention to the content of the statement and the press conference of Fed Chairman Powell to see whether it will put some curbs on the recent decline of the dollar. Judging from the technical chart, the retracement target of the USD/JPY increase since December last year (148.63 yen → 158.87 yen) may form support around 153.75 yen (50% retracement level) or 152.54 yen (61.8% retracement level).
■ Even if risk sentiment deteriorates, the sustainability of the yen's appreciation is still limited, and the USD/JPY exchange rate may be supported in the 152-153 yen range.
This morning in the Asian session, the USD/JPY appreciated by about 1 yen from the closing price of the US market on the 27th, rebounding to a high of 155 yen. The trigger for this change was that the US Senate approved the nomination of Scott Bessent as Treasury Secretary with a majority vote in favor. According to the Financial Times, Bessent advocated a uniform 2.5% tariff on US imports and planned to increase the tariff gradually month by month. In addition, US President Trump said that he was inclined to set the uniform tariff "much higher" than 2.5%, further promoting the strength of the US dollar.
At the Senate nomination hearing on the 16th, Bessent emphasized that "ensuring the status of the US dollar as a global reserve currency is vital" and expressed respect for the independence of the Federal Reserve (FRB). In his early days in office, President Trump also aligned himself with Bessant’s position and appears to be tolerant of a stronger dollar in the short term to avoid financial market turmoil. Although the BRICS countries (BRICS) such as Brazil and China are discussing the creation of a common currency and have set off a global trend to reduce reliance on the dollar, the dollar’s dominance in the international system will remain difficult to shake in the short term.
Since December last year, the appreciation trend of the dollar against the yen has been adjusting. If risk sentiment deteriorates as it did yesterday, the dollar against the yen may fall back. However, as the Bank of Japan is expected to continue to raise interest rates at a moderate pace until the neutral interest rate level, the sustainability of the yen’s appreciation may be limited in the context of the possibility that real interest rates will remain negative for a long time. The Federal Open Market Committee (FOMC) of the Federal Reserve is expected to keep the policy rate unchanged from today to tomorrow, so the market will pay close attention to the content of the statement and the press conference of Fed Chairman Powell to see whether it will put some curbs on the recent decline of the dollar. Judging from the technical chart, the retracement target of the USD/JPY increase since December last year (148.63 yen → 158.87 yen) may form support around 153.75 yen (50% retracement level) or 152.54 yen (61.8% retracement level).