USD/JPY holds ground near yearly highs, trades around 151.70

• USD/JPY treads water to hold ground near yearly highs ahead of the US data.
• US Treasury Secretary Yellen disagrees with Moody’s decision last week to cut its outlook on US debt.
• A former BoJ official stated that the central bank is likely to raise short-term rates to around 0.0% from -0.1% in April 2024.

The USD/JPY hovers around 151.70 during the Asian session on Tuesday. The USD/JPY pair holds onto yearly highs, and there’s potential for it to surpass these levels if the US Dollar (USD) successfully halts its recent losses. However, the Greenback is encountering headwinds from the volatile US Treasury yields. The 10-year US bond yield hovers around 4.63% by the press time.

The US Dollar Index (DXY) maintains a position near 105.70, treading water to halt a two-day losing streak. The upcoming US inflation data holds significant weight in shaping market expectations. If the inflation data exceeds expectations, it may convince investors that the Federal Reserve (Fed) still has room to increase interest rates by 25 basis points. The data-dependent approach emphasized by Fed officials means that strong inflation figures could influence the central bank’s decisions in favor of further tightening.

US Treasury Secretary Janet Yellen’s confidence in the resilience of the US economy is clear, despite Moody’s decision to cut its outlook on US debt. She has expressed disagreement with Moody’s move and emphasized that the US economy is strong, and the Treasury market is safe and liquid. Moody’s decision to lower the outlook to “negative” from “stable” is rooted in concerns about fiscal deficits and a decline in debt affordability.

Former Bank of Japan (BoJ) official Hideo Hayakawa shared insights in an interview with Reuters on Tuesday. According to Hayakawa, the BoJ is likely to raise short-term rates to around zero from -0.1% in April 2024, contingent on more data becoming available on next year’s spring wage negotiations. The BoJ had dismantled Yield Curve Control (YCC) in October, setting the stage for its next move. Hayakawa suggests that service prices are already rising, and the BoJ is waiting for evidence before making further decisions.

Japanese Finance Minister Sunichi Suzuki emphasized the importance of stable currency movements that reflect fundamentals. He stated on Monday that all possible steps will be taken regarding foreign exchange (FX) moves. Additionally, the Director-General of the Bank of Japan’s (BoJ) monetary affairs department, Kazuhiro Masaki, noted that even with upward pressure on long-term interest rates, the BOJ does not anticipate the 10-year yield to significantly exceed 1.0%.

Investors will focus on the preliminary Japan’s Gross Domestic Product for the third quarter (Q3) on Wednesday to gain fresh cues on the Japanese economic scenario.