Any Hints on Negative Policy Exit by the BOJ Will Send USD/JPY Surging Tomorrow

Since early this year, the bullish trend in USD/JPY has been particularly robust as the Bank of Japan has remained very accommodative while the FED policy has been extremely restrictive, putting this pair near all-time highs around 152. However, statements by BOJ governor Ueda about exiting the loose monetary policy boosted the JPY, which sent USD/JPY lower by more than 600 pips. However, the BOJ reversed on these comments and markets are now not really sure what to expect from the BOJ meeting tomorrow.

The price fell to 141.70 in the first week of December, but the sentiment improved as the BOJ denied hiking rates in this week’s meeting and the price bounced off the 200 daily SMA which held as support on the daily chart. Although the climb stopped below the other moving averages and reversed again last week, after the FOMC meeting on Wednesday and this pair broke below the 200 SMA, falling below 141.00.

The USD turned quite soft after FED’s policy meeting, as they reaffirmed the market’s dovish expectations by keeping interest rates on hold and signaling that the tightening trend is over, while mentioning rate cuts in 2024. The Bank of Japan, on the other hand is projected to keep its policy unchanged tomorrow. Expectations from the Bank of Japan have been choppy in recent weeks, after comments by Governor Ueda, who stated, among other things, that “managing monetary policy would become more difficult from the end of the year.”

These remarks fueled speculation of a possible December move by the Bank of Japan, and the JPY surged 600 pips higher in response. But a few days later we heard that Governor Ueda had no intention of signaling “anything about the timing of a policy change.” According to more recent sources, the Bank of Japan sees little need to bring an end to negative rates in December and aims to hike rates in January. This would be equally bullish for the JPY, if Ueda confirms a policy change in the next meeting. But we will have to wait until tomorrow.

USD/JPY Live Chart