The Japanese yen has ended the year on a high note as the US dollar index (DXY) sell-off has gained steam. The USD/JPY exchange rate retreated to a low of 141.75 on Friday, its lowest point since August and much lower than the YTD high of 151.80.

The USD/JPY pair will be the key currency exchange rate to watch in 2024 as investors continue watching the actions of the Bank of Japan (BoJ). The bank maintained a relatively dovish tone in 2023 even as other central banks hiked interest rates.

In the US, the Federal Reserve hiked rates to their highest point in over two decades. Similarly, the European Central Bank (ECB) pushed them to their highest level on record. Other central banks like the Bank of England (BoE) and Swiss National Bank (SNB) also hiked rates in 2023.

The BoJ, on the other hand, maintained rates at the negative zone. Its only hawkish thing happened a few months ago when it extended the band of its 10-year bond yields.

Therefore, traders will focus on what the bank will do in 2024. Some economists see the bank hiking rates, a move that will see it exit the sub-zero level. If this is correct, it will happen at a time when other banks like the Federal Reserve and ECB will be cutting them.

In its final decision of the year, the Federal Reserve pointed to three rate cuts in 2024 and analysts believe that it could deliver more cuts during the year. Officials are comfortable that America’s inflation is in a downward trend.

A BoJ rate hike will also happen at a time when Japan’s inflation is moving downwards. The most recent data revealed that the country’s inflation dropped sharply in November and the trend could continue. The core CPI came in at 2.5% its slowest growth rate since 2022.

USD/JPY chart by TradingView

The USD to JPY exchange rate has been in a strong downtrend in the past few weeks. As it dropped, the pair moved below the 50-day and 200-day Exponential Moving Averages (EMA). If this trend continues, the pair will likely form a death cross pattern. It has also moved below the key support level at 145.08, its highest point on June 29th.

Therefore, the outlook is that the USD/JPY pair will continue falling in 2024 as sellers target the key support at 137.17, its lowest swing on July 14th. The stop-loss of this trade will be at 145.08.

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