Japanese Yen benefits from retreating US bond yields and a weaker US Dollar

US President-elect Donald Trump nominated prominent investor Scott Bessent – a fiscal conservative – as Treasury Secretary, reassuring the bond market and pulling yields lower across the board. 

The US Dollar, having risen for eight weeks in a row, retreats from its highest level since November 2022 as traders opt to take some profits off the table following the post-US election blowout rally.

Despite stronger consumer inflation data from Japan and Bank of Japan Governor Kazuo Ueda's hawkish remarks, domestic political uncertainty could restrict the BoJ from tightening its monetary policy. 

Meanwhile, investors have been scaling back their bets for another 25-basis-points rate cut by the Federal Reserve in December amid worries that Trump's policies could boost inflationary pressures. 

According to CME Group's FedWatch Tool, traders are pricing in just over a 55% probability that the Fed will lower borrowing costs next month and a nearly 45% chance for an on-hold decision. 

The optimism over more business-friendly policies from the new Trump administration was reinforced by the flash US PMIs, showing that business activity climbed to a 31-month high in November.

S&P Global reported on Friday that the Composite US PMI rose to 55.3 this month, or the highest level since April 2022, suggesting that economic growth probably accelerated in the fourth quarter. 

Reports suggest that a ceasefire deal between Israel and the Lebanese militant group Hezbollah is very close, which further fuels the risk-on mood and might cap the upside for the safe-haven JPY.