Yesterday, in one of the last major economic events of 2023, the Bank of Japan concluded its December 2023 monetary policy meeting and issued its latest decision on interest rates. Recently, the Bank of Japan decided to keep interest rates steady at -0.1%. The country's negative interest rate has been in place for some time now – an anomaly in a very tight year where many countries have raised interest rates by more than 100 basis points. Therefore, this gave bulls of the USD/JPY pair the opportunity to rebound higher, with gains reaching the resistance level of 144.95. obviously, that’s before stabilizing around the level of 143.90 at the time of writing the analysis.
Also, the Bank of Japan had left its 10-year yield curve control (YCC) target intact at 0%. Meanwhile, this decision was reportedly taken unanimously – demonstrating a strong stance against any immediate surprise rise in short-term interest rates. Consequently, what was on everyone's minds – communication about when and how Japan will emerge from the negative interest rate cycle – has remained absent. Guidance was left unchanged, and unlike the US Federal Open Market Committee's recent interest rate announcement, timelines, and monetary policy plans for 2024 were noticeably absent.
Overall, the Bank of Japan's stance, and lack of communication on any plans to exit the negative interest rate, did not do much to help the Japanese yen in its current losing streak. Accordingly, the US dollar rebounded significantly against the Japanese yen to 144.95 from the support of 142.24 in the same session.
However, Bank of Japan Deputy Governor Ryozo Himeno gave a speech titled “Japanese Economy and Monetary Policy” on December 6 that shed some light on the matter: Looking at financial institutions. As, their profit margins continued to deteriorate during the period of low interest rates, and with lower net income Benefits to less than half of their peak. Thus, it cannot be guaranteed that during the phase of rising interest rates the opposite will simply happen and profit margins will be increased. However, this phase would also pave the way for financial institutions to raise their investment returns by replacing the bonds they own with new ones. In addition, if the corporate sector makes active investments along with economic improvement during the exit phase, this is likely to increase demand for loans and make it easier for financial institutions to secure profit margins between deposits and lending. Shortly, Proper risk management will be needed to overcome these risks. moreover, there are pressures in the transitional phase, but from our point of view, the financial system has the flexibility necessary to withstand such pressures. So, exiting the current phase by raising interest rates significantly and in an orderly manner is certainly on the Bank of Japan's mind, and perhaps even in its imminent 2024 plans.
Bank of Japan Governor Kazuo Ueda held a press conference a few hours after the interest rate decision was announced, as analysts were hoping for more information that would shed more light on the Bank of Japan's future for a possible exit from the negative interest rate. However, Ueda remained vague and open in his answers as he said, “we still need to scrutinize whether a positive wage inflation cycle will materialize or not.” Therefore, it appears that cost-driven inflation has finally reached its peak and the possibilities are gradually increasing. He adding, “But in terms of whether the threshold will be met, we would prefer to look at more data.”
USD/JPY Technical analysis and Expectations Today:
According to the performance on the daily chart below, the price of the currency pair US Dollar against the Japanese Yen “USD/JPY” is still exiting a bearish channel that was formed recently. Therefore, this channel will not be broken without moving towards the resistance level of 146.60. On the other hand, and over the same period, a return to the support of 142.30 will be important for a bearish move. Recommendly, the psychological support may exceed 140.00. The USD/JPY will remain dependent on what comes from central banks’ policies and the announcement of the US consumer confidence reading later today.
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