The Japanese yen strengthens to 151.8 against the dollar, marking its fourth consecutive weekly gain as strong economic data and hawkish BOJ signals fuel rate hike expectations. The currency pair touched 150.96 in early trading, its strongest level since December 10, amid a remarkable 2% weekly appreciation - the most substantial since November.
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December household spending surged 2.7% year-on-year, dramatically exceeding the expected 0.5% increase and marking the first expansion in five months. The robust spending data, combined with December's 0.6% rise in real wages, adds to evidence that Japan's economic recovery is gaining traction, though officials remain cautious about declaring a definitive consumption trend reversal.
Monetary Policy Trajectory
Markets are now pricing in an 80% probability of another BOJ rate hike by July, with certainty by September, following hawkish signals from BOJ board member Naoki Tamura suggesting rates should reach at least 1% by March 2026. This represents a significant shift from January's historic move to 0.50% - the highest rate in 17 years.
IMF Warning
The International Monetary Fund has urged vigilance regarding potential spillover effects from rising market volatility on Japanese financial institutions' liquidity conditions. Of particular concern is the impact of interest rate increases on government debt servicing costs, which are projected to double by 2030, and possible increases in corporate bankruptcies.
Strategist Outlook
While the yen's strengthening momentum is significant, analysts at Barclays suggest limited potential for sustained large drops in USDJPY, citing ongoing Japanese capital outflows and negative real rates as persistent headwinds. However, upcoming spring wage negotiations, expected to yield another 5% hike, could maintain the BOJ's hawkish trajectory and support further yen appreciation.
USDJPY (D1 Interval)
The USDJPY is trading above the 38.2% Fibonacci retracement level, which will act as support and has historically proven to be valid. This level also coincides with the 200-day SMA at 152. To regain upside momentum, the 23.6% Fibonacci retracement level, aligning with the 100-day SMA, will be crucial. A continuation of the downward trend could lead to a retest of the 50% Fibonacci retracement level, which has previously triggered reversals. The RSI is in bearish divergence and is currently approaching the oversold zone, while the MACD continues to widen in the downtrend.
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