The Japanese Yen remains distant from USD amid geopolitical tensions and a lively US economic force

USD/JPY exchange rate rose to 157.00 on Thursday, continuing its upward trend for the third consecutive day. This strength is not only due to the robust US economy but also because of various issues putting pressure on the yen.

China-Japan Tensions Increase Difficulties

Trade tensions between China and Japan have escalated. Beijing recently announced export restrictions on “dual-use” goods to Japan, citing national security reasons. Additionally, there are further investigations into the market dumping of Dechlorosilan, a key chemical in the semiconductor industry. These trade fluctuations have kept the Japanese yen under continuous pressure.

On the employment front, Japan still faces sluggish wage growth. In November, cash wage growth increased by only 0.5% year-over-year, significantly below the 2.3% expectation.

US Data Supports the Dollar and Eases Growth Concerns

While Japan faces challenges, the US economy shows signs of resilience. The US Department of Labor reported that initial unemployment claims rose to 208,000, below the market expectation of 210,000, and decreased from the previous week’s 200,000.

The four-week moving average of claims fell to 211,750, indicating a labor market that remains steady. The dollar also received support from surprisingly strong trade balance data.

US Trade Balance Revised Higher

The US goods and services trade deficit narrowed to only $29.4 billion in October, much better than the expected $58.9 billion. This is a significant improvement from the previous month’s deficit of $48.1 billion. The October figure marks the lowest deficit since June 2009.

Elsewhere, global imports of goods fell to a 21-month low, while exports surged to record highs. These events reflect volatility caused by changes in trade policy.

The US dollar index (DXY), which measures the dollar’s value against a basket of six major currencies, is around 98.85 and remains near its monthly high. This is supported by rising US Treasury yields.

Market Outlook on Fed Policy in the Short Term

Recent data has eased concerns about a potential slowdown in the labor market. CME FedWatch indicates an 88% probability that the Federal Reserve (Federal Reserve) will keep interest rates unchanged at the January 27-28 meeting. However, most investors still expect two rate cuts in 2025. The upcoming non-farm payrolls (NFP) report on Friday could cause slight short-term adjustments in market expectations.

Currency Movements on Thursday

The US dollar performed well against major currencies, rising 0.37% versus the New Zealand dollar and 0.34% versus the Canadian dollar. Meanwhile, USD/JPY increased by only 0.03%, reflecting the tug-of-war between yen protection and dollar support.

The Japanese yen remains generally under pressure despite multiple factors. Trade tensions, weak employment data, and lack of wage growth figures continue to challenge the currency.