Is USD/JPY Set For Seasonal Gains On Q1? -

Is USD/JPY Set For Seasonal Gains On Q1?

Jan 08, 2025Jeremy ParkinsonFinance0

Instrument: USD/JPY (Currency)
Average Pattern Move: +1.56%
Timeframe: Jan 6 – Apr 6
Winning Percentage: 65%The yen weakened the most among major currencies to start the week commencing Jan 06 as Tokyo traders returned from the holiday season, dropping to a 157.83 per dollar on Monday. The decline followed strong US data, including ISM manufacturing and jobless claims, released last week. Many strategists are predicting further yen weakness ahead of Friday’s US jobs report with the BoJ expected to take a cautious stance to further interest rate hikes despite STIR markets seeing an 87% chance of a 10bps hike on January 24. At the close of 2024, the yen was at 157.27 per dollar, down over 11% for the year and marking its fourth consecutive annual decline. Will that decline continue for the start of 2025?
Seasonal Strength in USD/JPYHistorical data reveals a seasonal buy bias pattern for USD/JPY between January 6 and April 6 over the last 20 years. During this period. The annualized return is +6.45% with winning trades seeing a 65% success rate (13 out of 20 trades). The average return is +1.56%> The attached chart highlights consistent gains during this timeframe, with the cumulative profit trend indicating a promising season for USD/JPY. The pair’s seasonal behaviour suggests a favorable outlook for early 2025.

Technical Signals
Strategists suggest that rising global yields and positive US economic data are driving current USD/JPY dynamics. Domestic investors in Japan are selling yen and buying dollars as they anticipate further yen depreciation. Will the strong buy pattern from the last 4 years continue to start 2025?

Outlook: A Strong Start for USD/JPY?
With a history of seasonal strength during this period and the yen under pressure from both domestic and international factors, USD/JPY appears poised for gains. However, potential risks such as BOJ policy changes or government intervention should be monitored closely.Trade risksSeveral risks could impact the USD/JPY seasonal outlook:

Market Intervention: More yen weakness may spur Japan to intervene in the currency market, with authorities recently warning of “appropriate action” against excessive moves.

BOJ Policy Shifts: Bank of Japan Governor Kazuo Ueda reiterated a cautious stance on raising rates but indicated a potential hike if economic conditions improve this year, likely shifting the timing to March.

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