On February 17, during trading, Japan's 10-year government bond yield continued to climb, surpassing 1.4%, marking a nearly 15-year high. Meanwhile, the U.S. 10-year government bond yield has been fluctuating downward since the start of the year, currently at 4.50%. The narrowing interest rate differential between the U.S. and Japan led to the USD/JPY rate falling below 152.0 again, dropping to an intraday low of 151.33, close to the previous low of 150.9.
This change is primarily supported by Japan's strong economic performance. Japan's fourth-quarter GDP growth was announced at 2.8%, far exceeding the widely expected 1.1%, thanks to a surge in corporate investment and net exports, marking the third consecutive quarter of expansion for Japan's economy. The economic recovery further supports a potential interest rate hike by the Bank of Japan, with markets anticipating an approximate 35-basis-point increase by December 2024.
According to the Commodity Futures Trading Commission (CFTC) data, as of the week ending February 11, net long positions in the yen have reached a four-year high. This reflects rising market expectations for a rate hike by the Bank of Japan. Overnight index swap trading indicates that the market perceives an over 80% likelihood of a rate hike by July, with a rate increase before September almost certain.
Additionally, the progression of the Russia-Ukraine conflict remains a focal point for the market. Bloomberg reports that the U.S. government has conveyed to European officials its hope for a ceasefire by Easter this year. It is expected that representatives from the U.S. and Russia will soon meet in Saudi Arabia to discuss restoring bilateral relations and address the Ukraine issue. A resolution to the Russia-Ukraine conflict could trigger a one-time valuation correction for the euro, which could further drive the USD/JPY downward.
From a technical analysis perspective, the USD/JPY has broken below the key support level of 152.00 and fallen through the Gann 2/1 line and the 151.70 level, suggesting that downward momentum is strengthening. In the short term, the USD/JPY may further retest the previous low of 150.92. If it breaks below this effectively, the market could drop to 149.20 or even 147.0. To reverse the current downward trend, the USD/JPY would need to return above 152.80 and break through 154.80.
