USD/JPY Attempting to Resume Uptrend, As BOJ Remains Accommodative
USD/JPY was particularly strong since the beginning of 2023, with the Bank of Japan being quite supportive while the FED policy has been ext
USD/JPY was particularly strong since the beginning of 2023, with the Bank of Japan being quite supportive while the FED policy has been extremely restrictive until recently, which is quite the opposite, bringing this pair to all-time highs around 152 where the price reversed in October last year. Sellers failed at this resistance level once again last month and USD/JPY has been retreating for more than a month, losing around 11 cents, however we’re seeing some buying pressure in recent days.
It was the FED first that triggered the retreat in this pair, giving dovish signals about a policy reversal. Markets were anticipating the FED to start cutting interest rates in Q1 of next year and in last week’s meeting the FED confirmed these rumors. Now markets expect around 125 bps of rate cuts in 2024.
Then the decline accelerated as BOJ governor Ueda hinted at quitting the loose monetary policy, which bolstered the JPY, sending USD/JPY down to 141 lows last week. However, the BOJ modified its position on these remarks, and yesterday Ueda killed any hopes of rate hikes soon. U
SD/JPY surged around 250 pips higher to 145, breaking above the 50 SMA (yellow), but retreated to 143.50s as the USD tuned weaker again. Although the 50 SMA seems to have turned from resistance into support, where we decided to open a buy US/JPY signal, so it seems like the larger bullish trend is starting again.
Bank of Japan Monetary Policy Decision
- The BOJ has maintained the short-term interest rate target at -0.1%.
- The 10-year Japanese Government Bond (JGB) yield target remains around 0%, and the 1% upper reference rate is unchanged.
- The Yield Curve Control (YCC) decision was unanimous.
- No changes were made to forward guidance.
Economic Assessment:
- The BOJ notes that the economy has moderately recovered.
- Private consumption is rising moderately.
- The year-on-year rate of rise in the Consumer Price Index (CPI) has slowed down due to factors such as lower energy prices.
- Despite this, the CPI has been around 3% recently due to the pass-through of cost increases to consumer prices.
- Inflation expectations have moderately risen.
Economic Outlook:
- The economy is expected to continue recovering moderately for the time being.
- Japan’s economy is projected to continue growing at a pace above the potential growth rate.
- The rate of rise in the CPI is expected to be above 2% through fiscal 2024.
- Thereafter, the rate of rise is projected to slow down.
Inflation and Price Stability:
- Underlying CPI inflation is expected to increase gradually toward achieving the price stability target.
- Japan’s economy is expected to continue recovering moderately.
- Inflation expectations are heightening moderately.
- Trend inflation is expected to gradually accelerate.
- Inflation is expected to move above 2%, then the pace of increase is anticipated to slow down.
Uncertainty and Monitoring:
- Uncertainty regarding Japan’s economy and prices remains very high.
- The BOJ emphasizes the need to scrutinize foreign exchange (FX) movements, market dynamics, and their impact on the economy and prices.
Remarks by Bank of Japan Governor Ueda
- Little chance for us to say ‘we will change policy’ next month
- There will be some data between now and next policy meeting, but not many
- Not much new data will be available before January policy meeting
USD/JPY Live Chart
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