BUZZ-COMMENT-USD/JPY bulls look to Trump revival

USD/JPY bears remain in control as Treasury yields slip after U.S. data and dovish comments from Fed governor Chris Waller.

The Japanese yen has been supported by growing expectations that the Bank of Japan will hike rates in January, contrasting with other central banks, including the Fed.

Since peaking at 158.88 after Friday’s payroll data, USD/JPY has dropped to a near one-month low of 155.21 on Thursday, despite strong Japanese investment flows into U.S. equities.

With odds of a BOJ hike on Jan. 24 near 80%, the yen has already adjusted, setting up a possible USD/JPY move higher after the move as the market switches focus back to news flow from the incoming Trump administration.

The incoming administration's tariff and trade policies are generally seen as dollar-positive. Regarding Japan, the administration may revisit the 2019 bilateral trade deal, pushing Japan to purchase more U.S. energy, agriculture, and defense goods to avoid tariffs and correct trade imbalances.

While a stronger dollar might push USD/JPY toward 160, this rise could be uncomfortable for the Japanese government and the BOJ. Rising import costs were flagged by BOJ officials this week. Japan Finance Minister Katsunobu Kato warning on Thursday about excessive foreign exchange moves may be a sign of more coordinated responses to yen weakness as the political climate heats up.

Longer-term, Japanese investors may balance overseas returns and heightened political risks. The Nippon Steel deal may be help gauge the investment climate.

Technically, USD/JPY bulls need the psychological 155 level to hold. Otherwise, dip buyers will wait until an ascending trend line from September low appears at 154.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((Burton.Frierson@thomsonreuters.com;))