USD/JPY Closes in on Multi-Decade Highs after the BoJ & Fed Decisions

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USD/JPY Analysis

The pair made a strong start to the year due to the continuation of the favorable monetary policy differential. The bank of Japan procrastinated on normalizing its extraordinarily accommodative stance and the Fed adopted a more conservative stance around cutting rates.

The Bank of Japan did pivot on Tuesday though, ending years of ultra-loose setting. It lifted rates out of negative territory and abandoned the yield curve control, but this was far from a hawkish shift. Officials said they will continue with bond purchases and pledged to maintain accommodative conditions.

Furthermore, markets had come to expect the change and USD/JPY strengthened after the decision, whereas the Fed has no compelling reason yet to start removing monetary restraint. Bulls are in firing distance of the July 1990 highs (152.20), but further gains towards 155.78 may prove elusive.

The Fed appeared dovish on Wednesday however, as it kept guidance for three cuts this year, in an outcome that harmed the greenback and boosted Wall Street. This shift in the monetary policy dynamics could eventually lead to a significant repricing of the pair. Moreover, the Yen weakness in spite of the BoJ's pivot, raises the risk of an FX intervention by Japanese authorities. They had last stepped in in October 2022 at similar price levels and Finance minister Suzuki said today that the government is watching currency moves with a high sense of urgency, according to Reuters. [1]

These factors can cap the upside and drive a pullback below the EMA200 (at around 149.00), but the downside contains multiple roadblocks and sustained weakness below 145.88 does not easy at this stage.

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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 20 May 2024 https://www.reuters.com/markets/asia/boj-chief-vows-support-economy-with-monetary-stimulus-2024-03-21/

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