USD/JPY Upbeat as the Bank of Japan Maintains the Status Quo
USD/JPY Analysis
The Bank of Japan did not rock the boat in Mr Kuroda's last meeting at its helm, since it kept rates at -0.1% and retained the yield curve control to between -0.5% and 0.5% [1]. The move was largely expected since a maintenance of the status quo appeared the most likely option ahead of next month's leadership change, but it's not like the bank has not surprised before.
Back in December, officials had caught markets off guard, by announcing a widening in the yield curve target [2]. This hawkish tilt has opened the door to policy normalization, but as I have said before a swift and straightforward exit from the ultra-loose policy setting is not easy, while incoming governor Ueda has not shown willingness to ruffle any feathers.
The lack of changes works in favor of USD/JPY, amidst heightened expectations around the Fed's policy path. Mr Powell opened the door to an acceleration in the pace of tightening with his two-day testimony and reinforced the higher-for-longer prospects, despite "we have not made any decision about the March meeting".
After those remarks, CME's FedWatch Tool assigns the highest probability to larger 0.5 basis points increase in the next meeting (from 25 bps previously) and a terminal rate of 5.75% - a full percentage point above the current rate. [3]
USD/JPY runs a profitable week, having already set new 2023 highs (137.91) and todya's upbeat mood keeps it on track for higher highs, which will allow it to look towards 139.39-58 and beyond.
On the other hand, progress has been slow, given the significant market repricing around the Fed's next move and the terminal rate. As such, there is scope for pressure towards the key 134.30 region, but a strong catalyst would be required for daily closes below the EMA200 that would bring 130.56 in the spotlight.
In any case, markets now brace for today's highly anticipated US jobs report, that has the potential to spark volatility and determine the pair's trajectory.
Nikos Tzabouras
Senior Market Specialist
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
| Retrieved 10 Mar 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2023/k230310a.pdf | |
| Retrieved 10 Mar 2023 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2022/k221220a.pdf | |
| Retrieved 07 Jun 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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