- For the second day in a row, the price of the USD/JPY currency pair is trying to rebound to the upside, stable around the resistance level 129.15 at the time of writing the analysis, after it collapsed towards the support level 127.21, its lowest since May 2022, on the impact of expectations of further tightening of this Japanese central policy.
- In addition to this week, the US dollar was negatively affected by the calming expectations of tightening the Federal Reserve's policy, following the announcement of the latest US inflation figures.
In general, the Bank of Japan returned to the spotlight this week after shocking the global financial markets in December with an amendment to its stimulus program. While all but one of the 43 economists surveyed expected the Bank of Japan to leave policy unchanged on Wednesday, many say they cannot rule out further action. This is partly because the Bank of Japan's messaging became less clear after doubling the 10-year yield cap. BOJ Governor Haruhiko Kuroda has in the past described such a move as raising interest rates but said last month it was aimed at improving the sustainability of the stimulus framework.
He will step down next April, and speculation is growing that the central bank will then move towards normalizing policy. Despite the decision to allow wider bond movements, pressure on the BOJ's yield curve control framework has only increased since last month. Japan's 10-year yield rose above the new ceiling of 0.5% on Friday for the first time since the Dec. 20 meeting, prompting the Bank of Japan to spend 3.2 trillion yen ($24.9 billion) on fixed-rate bond purchases to rein in it.
Investors are now more convinced that any change in policy must be abrupt, making the January meeting a wild card. Economists at Citigroup expect the bank to give up yield curve control entirely. A local media report on Thursday said the Bank of Japan would assess the side effects of broad-based monetary easing, which led to more speculative moves by investors. However, BoJ officials see little need to rush into another big step to improve the performance of the bond market, and policymakers should assess the impact of last month's yield adjustments for now, people familiar with the matter told Bloomberg earlier this month.
New quarterly economic forecasts released along with the policy statement will also come under scrutiny. It is widely expected that higher price expectations will emerge in the coming fiscal years. Inflation data due on Friday may also show acceleration.
Elsewhere, Chinese data may reveal the damage to the economy from Covid lockdowns, US retail sales could show further softness, and UK inflation is likely to slow. Central bankers in Malaysia and Indonesia are expected to raise interest rates, while Norway and Turkey are likely to hold.
Technical analysis of the USD/JPY pair:
In the near term and according to the performance on the hourly time frame, it appears that the USD/JPY currency pair is trading within a sharp descending channel formation. This indicates a strong short-term bearish momentum in market sentiment. Therefore, the bears will look to extend the current decline towards support 127.468 or below to support 126.962. On the other hand, bulls will target short-term profits around 128.22 or higher at 128.77 resistance.
- On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of a descending channel.
- This indicates a significant long-term bearish momentum in market sentiment.
- Therefore, the bears will target long-term profits at around 125.25 or below at the support at 122.13.
- On the other hand, the bulls will look for a bounce around 130.589 or higher at 133.58 resistance.
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