Can the JPY Be the Most Bullish Currency This Year With A Late Pivot by the BOJ?

The Japanese Yen has been the weakest currency among the major ones during 2022, despite the late reversal since October. USD/JPY started trading at 115 and ended the year above 130. One of the reasons for this late reversal has been the intervention by the Finance Ministry of Japan, as well as by the Bank of Japan (BOJ), which has helped revive the JPY after such a massive crash earlier in 2022.

But, the USD weakness in the last 203 months has also helped reverse USD/JPY lower, as this pair has given back more than 20 cents since reversing more than two months ago just below 152. Moving averages have turned from support into resistance as the trend changes, with the 20 SMA (gray) pushing the highs lower, which also indicates that the pace of the decline has been very fast.

USD/JPY Daily Chart – The 20 SMA Pushing Highs Lower

  The 200 SMA has been broken

Moving averages were acting as support on the daily chart during the uptrend, but they have been broken and the 20 SMA (gray) has turned into resistance in recent months, which shows that the pace of the decline is very strong. The 200 SMA 9purpke) held as support for some time, but it was broken as this pair fell 700 pips lower on the BOJ pivoting. The BOJ has been keeping the monetary policy very loose, with interest rates at -0.10% which they still hold, as inflation remains under control in Japan.

But consumer inflation has started to creep in after former Japanese Prime Minister Shinzo Abe’s death and the BOJ is starting to pivot, as it tightens the policy. USD/JPY retraced higher after the crash but last week the decline resumed again and now the BOJ is giving signs of pivoting further as the Nikkei media highlighted over the weekend.

The Bank of Japan is considering raising its inflation forecasts in January. This would be via the Bank’s next quarterly economic outlook report due after its policy board meeting on January 17 and 18. New forecasts would show price growth close to its 2% target in fiscal 2024. according to people familiar with discussions at the BOJ:

• Proposed changes would show the core consumer price index, or prices excluding fresh food, rising around 3% in fiscal 2022, at least 1.6% but less than 2% in fiscal 2023, and nearly 2% in fiscal 2024
• The previous inflation forecasts released in October came in at around 2.9%, 1.6% and 1.6%, respectively

Raising the inflation forecast like this would provide the basis for “a pivot away from ultraloose monetary policy“. Although the BOJ Governor Kuroda has been insistent that he expects inflation to fall from the middle of Japan’s next fiscal year. A change to forecasts would be very significant and carries the implication of a policy pivot as the Nikkei says, and provide a tailwind to the JPY.

USD/JPY Live Chart