USD/JPY Sets New 2023 Highs as the Fed-BoJ Differential is Maintained

  • USDJPY
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USD/JPY Analysis

The US Fed paused its tightening cycle last Wednesday, but maintained its hawkish bias, as most officials continue to view one more hike this year, for reaching peak rates, according to the updated projections. More to it, participants lowered the 2024 median rate to 5.1% (form 4.6% prior), pointing to a tighter policy path and less cuts next year, compared to what was previously estimated.

Two days later, the Bank of Japan did not change the ultra-accommodative setting. Policymakers also reiterated the pledge to "patiently continue with monetary easing" and take more action if necessary, for achieving the 2% inflation target "in a sustainable and stable manner". Governor Ueda doubled down on the dovish message today, repeating that this goal has not been reached, despite elevated inflation and vowed once again to maintain monetary easing and the yield curve control [1].

As such, the monetary policy divergence that has benefited USD/JPY, remains intact for now. However, the time this will change could be slowly approaching. The BoJ governor had recently opened the door to the eventual end of sub-zero rates, while the Fed is close to the terminal rate (if not already there). Given the pair's rally, a shift (or anticipation of) in this dynamic has the potential to lead to a significant repricing.

USD/JPY extends its gains today in the aftermath of the Fed and BoJ outcomes, trying to take out the November 2022 high (148.83). This would open the door to the multi-decade highs of 151.95-152.20, but we are cautious at this stage.

Verbal support for the Yen and the possibility of FX intervention may contain the upside. There is scope for a pullback as the move starts to look stretched, but strong catalyst would be required for the EMA200 to be tested (at around 146.30).

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 23 May 2024 https://www.boj.or.jp/en/about/press/koen_2023/data/ko230925a1.pdf

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