Unravelling the Yen Surge and BoJ Policy Speculations Impacting USD/JPY

The recent downturn in the USD/JPY pair due to the yen’s strength, driven by speculation about the Bank of Japan’s potential tightening of monetary policy.

The recent upswing in the yen’s strength has triggered a substantial downturn in the USD/JPY pair, breaching the critical 146.00-level and falling below the support established by the December 4th low at 146.23. This market shift is rooted in heightened speculation among market participants, driven by the anticipation that the Bank of Japan (BoJ) may contemplate tightening its monetary policy as early as the impending meeting on December 19th.

Overnight reports unveiled that BoJ Governor Ueda engaged in discussions with Prime Minister Kishida, specifically on monetary policy, in preparation for the December meeting. Sources like Bloomberg indicate that Governor Ueda dived into conversations with the prime minister, addressing the economic landscape and underscoring the careful monitoring of wages and their potential impact on prices. It is noteworthy that Governor Ueda clarified that such meetings between a BoJ Governor and the prime minister are routine occurrences, taking place multiple times a year.

In addition to these interactions, Governor Ueda seized the opportunity to address parliament, presenting a semi-annual report on currency and monetary control. Throughout this discourse, he reaffirmed the commitment to achieving the inflation goal while sustaining an accommodative policy to bolster wage growth. Despite acknowledging the existence of various options for the policy rate in the event of an increase, he refrained from specifying a particular new rate level.

Although discussions hinted at the prospect of an exit from the negative rate policy, Governor Ueda’s comments did not indicate an imminent move in that direction this month. He underscored the significance of effective communication before implementing any changes, suggesting that it might be premature for an exit simulation. Nevertheless, the prevailing unease surrounding the potential departure of the BoJ from a negative rate policy has evidently impacted the Japanese Government Bond (JGB) market overnight. The 10-year JGB yield experienced a notable increase of around 10 basis points, marking the most significant surge in a year. Additionally, the latest 30-year JGB auction witnessed the lowest bid-cover ratio since 2015.

These recent market dynamics align with our existing short USD/JPY trade idea. Our analysts had previously anticipated the BoJ’s potential exit from the negative rate policy in January, aiming to reduce policy divergence with other major central banks. The recent downward trajectory of USD/JPY is primarily attributed to decreasing US yields, prompted by market participants adjusting their expectations for earlier and more substantial Fed rate cuts in the upcoming year. The release of the weaker-than-expected ADP survey for November, indicating a modest increase of only 103k in private employment, has further fuelled these expectations. However, it’s crucial to note that doubts persist regarding the accuracy of the ADP survey as a reliable leading indicator for broader payroll figures.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

  • Read this next

    Retail FX

    Lark Funding reopens to US traders, MyFundedFX picks cTrader

    Canada-based prop trading firm Lark Funding announced it will once again welcome clients from the United States.

    Institutional FX

    Cboe FX volume falls to lowest level since summer

    Cboe’s institutional spot FX platform, known as Cboe Spot, today announced its trading volume for the month ending February 2024, which took a step back after a strong rebound in December.

    Retail FX

    ThinkMarkets secures lucrative DFSA license in Dubai

    Melbourne-based broker ThinkMarkets has secured a license from the Dubai Financial Services Authority (DFSA) after it has already incorporated its new subsidiary in the Dubai International Financial Center (DIFC).

    Digital Assets

    New Horizen Lays Out Its Vision Of A Modular, Proof Verification Layer For Web3 Networks

    Horizen is forging a new path for the future of blockchain with its New Horizen initiative, which is building a modular Proof Verification layer that’s dedicated to verifying cryptographic proofs for any settlement layer, beginning with Ethereum. 

    Digital Assets

    Karma3 Labs Raises a $4.5M Seed Round Led By Galaxy and IDEO CoLab to Build OpenRank, a Decentralized Reputation Protocol

    Using OpenRank, developers and web3 companies can build consumer apps where people can discover, use, fund, read, or buy something on-chain without worrying about getting spammed or scammed.

    Digital Assets

    Worldcoin down as Elon Musk sues OpenAI CEO Sam Altman

    Worldcoin’s (WLD) token dropped following news of a lawsuit against related company OpenAI. The lawsuit was filed by Elon Musk and accused OpenAI and CEO Sam Altman of breach of contract.

    Institutional FX

    Exegy’s Liquidity Lamp adds intraday data to outperform S&P 500 by 31.8%

    Exegy has incorporated intraday signals into its AI-powered iceberg order detection tool, Liquidity Lamp. By adding intraday data to a baseline mean reversion strategy, Exegy’s model outperformed the baseline by 10.5% and the S&P 500 (SPY) by 31.8%, respectively in the out-of-sample testing.

    Industry News

    Think Elon Musk backed your crypto exchange? ASIC’s latest reveal may shock you

    In an absolutely shocking turn of events that nobody could have possibly seen coming, the Australian Securities and Investments Commission (ASIC) has bravely stepped forward to reveal that, yes, those videos of Elon Musk passionately endorsing a cryptocurrency exchange are as fake as a three-dollar bill.

    Fundamental Analysis

    Global FX Market Summary: EUR, USD March 1st, 2024

    The ISM’s February Manufacturing PMI is expected to show a slight increase, but remain below the expansionary threshold, while inflationary pressures persist and a Fed rate cut in June is still possible.

    <