November 25, 2022 04:22 AM ET
By:AnalysisWatch
The USD/JPY pair attracts some buying on Friday and partially recovers from the previous day's losses to near the 138.00 level, which is a week and a half low.
The pair managed to hold its intraday gains in the first half of the European session and is currently trading at the upper end of its daily range, just below the 139.00 mark.
The generally positive sentiment in the equity markets is weakening the safe-haven yen, which in turn is seen as a key factor supporting the USD/JPY pair. Apart from that, a rather dovish stance by the Bank of Japan is seen as a burden for the domestic currency and a tailwind for the dollar. However, the uptrend lacks bullish conviction and risks fizzling out rather quickly given the bearish sentiment surrounding the US dollar.
Minutes from the November meeting of the Federal Open Market Committee, released Wednesday, indicate that officials are largely content to move forward with rate hikes in smaller increments rather than bringing them forward.
This, in turn, cements bets on a 50 basis point rate hike at the next FOMC meeting in December and is highlighted by the continued decline in U.S. Treasury yields. The resulting narrowing of the interest rate differential between the U.S. and Japan benefits the JPY and prevents a significant recovery in the USD/JPY currency pair.
In addition, a rise in core consumer prices in Japan's capital, which hit its fastest annual rate in 40 years in November, cast doubt on the BoJ's view that recent cost-driven inflation will prove temporary. This may further discourage traders from placing aggressive bullish bets on the USD/JPY currency pair amid relatively low trading volumes. Therefore, it is advisable to wait for strong follow-through buying before confirming that spot rates have bottomed in the near term.