USD/JPY continues to fall toward 156.00 as traders expect BoJ to raise rates in January

• USD/JPY depreciates as traders assess the market sentiment of the BoJ raising interest rates in January.
• The Japanese Yen is set to decline more than 10% against the US Dollar in 2024.
• US Treasury yields fell by approximately 2% with 2-year and 10-year yields at 4.24% and 4.53%, respectively, on Monday.

USD/JPY extends its losses for the third consecutive session on New Year's Eve, trading around 156.20 during early European hours on Tuesday. However, the Japanese Yen (JPY) is headed for a decline of over 10% in 2024, marking its fourth straight year of weakening against the US Dollar (USD).

The USD/JPY pair's downside is attributed to the improved Japanese Yen (JPY) as traders continue to assess the market sentiment that the Bank of Japan (BoJ) may raise interest rates in January following the release of the Tokyo Consumer Price Index (CPI) inflation data last week.

In December, the headline Tokyo CPI inflation rose to 3.0% YoY, up from 2.6% in November. Meanwhile, the Tokyo CPI excluding Fresh Food and Energy increased to 2.4% YoY, compared to 2.2% the previous month. The Tokyo CPI excluding Fresh Food also climbed 2.4% YoY, slightly below the expected 2.5% but higher than the 2.2% recorded in November.

Additionally, the USD/JPY pair faces challenges as the US Dollar loses ground amid weaker Treasury yields. The US Dollar Index (DXY), which tracks the USD against six major currencies, remains soft around 108.00 as US Treasury bond yields fell by approximately 2% on Monday. The 2-year and the 10-year yields stood at 4.24% and 4.53%, respectively.

The downside risks for the US Dollar seem restrained as the Federal Reserve (Fed) may adopt a more cautious tone regarding potential rate cuts in 2025, signaling a shift in its monetary policy approach. This adjustment comes amidst uncertainties tied to the economic strategies expected under the incoming Trump administration.