Anna 
The Japanese yen is showing signs of recovery after facing substantial selling earlier this week following the Bank of Japan’s recent policy update. Analysts at Bank of Tokyo-Mitsubishi UFJ (MUFG) have provided insights into the outlook for the yen and the factors influencing USD/JPY.
The current market conditions suggest that the Bank of Japan’s decision to delay exiting negative interest rates is unlikely to trigger another sustained sell-off in the yen. This is particularly true as speculation grows that other major central banks may initiate earlier and more substantial interest rate cuts next year.
To witness a more prolonged rally in USD/JPY, market participants need to critically evaluate the likelihood of the Federal Reserve cutting interest rates earlier and more aggressively in the coming year. The upcoming release of the latest November US Personal Consumption Expenditures (PCE) deflator report is anticipated to be a key driver in shaping this perspective.
Analysts point out that the November Producer Price Index (PPI) report has already been released weaker than expected. Consequently, there is a higher likelihood that the forthcoming PCE report will provide additional evidence of slowing inflation. Such data would align with current market expectations that the Federal Reserve is inclined to implement interest rate cuts to achieve a less restrictive monetary policy stance in the coming year.
As market participants closely watch the developments in the US and assess the potential actions of major central banks, the trajectory of USD/JPY is expected to be influenced significantly by economic data and policy decisions.
