- According to recent forex market trading, the Japanese yen has strengthened with expectations of rising interest rates from the Bank of Japan in the future.
- Thus, USD/JPY pair was subject to selling yesterday, pushing it towards the support level of 146.97 from the resistance level of 148.70 in the same session after the Bank of Japan announcement.
- Currently, USD/JPY is trading around 147.80 at the time of writing.
The Bank of Japan may not have exited its negative interest rate policy at its January meeting, but all signs point to a rate hike in the first half of the year. Consequently, the Japanese yen rose against most other major currencies after Bank of Japan Governor Haruhiko Kuroda told investors that a rate hike is possible at any meeting, even if it does not include the release of new forecasts. Commenting on the performance and influencing factors, MUFG's chief currency analyst Lee Hardman said, "The yen has strengthened after the Bank of Japan's policy meeting, leading to a pullback in the USD/JPY pair towards the 147.00 support level."
Clearly, the markets are heavily investing in the April monetary policy meeting as the policy meeting where interest rates will be raised, largely due to the fact that this is the date for the release of the next set of forecasts. Ultimately, governor Kuroda of the Central Bank of Japan added that there is no sequence in mind when it comes to policy normalization.
For his part, Boris Kovacevic, an expert at Convera, said, "This indicates an exit from the last negative interest rate regime in the world but leaves us guessing about the timing. Without any hawkish rhetoric, action in the first quarter seems unlikely."
Meanwhile, the Bank of Japan has linked the possibility of raising interest rates to higher wage settlements in 2024. Also, Kuroda added at the press conference following the decision that he had heard encouraging comments about wage increases from major companies. Moreover, he added that the number of companies that have decided to raise wages in spring wage negotiations this year is higher than this time last year.
According to analysts, the main driver of yen gains was Governor Kuroda's comments at the accompanying press conference, in which he hinted that the Bank of Japan is nearing a rate hike. Overall, it seems to be a matter of when interest rates will rise, not if they will rise.
For forex markets, it appears that the Bank of Japan may raise interest rates just as others are cutting interest rates, leading to a divergence that could support the yen through 2024. Recently, The Bank of Japan left the interest rate unchanged at -0.1% and kept the yield curve control criteria intact at the end of the two-day meeting.
Overall, inflation in Japan has remained above target for over a year, and the central bank does not expect to return to 2% this year. At the same time, the low-interest rate environment is fuelling a boom in the stock market, which could give the Bank of Japan an additional reason to consider raising interest rates. Moreover, analysts add that the negative interest rate environment is partly responsible for this boom as the Bank of Japan is the only major central bank that has kept interest rates unchanged at -0.1% despite rising inflation in Japan and the world.
USD/JPY Technical Analysis and Expectations Today:
So far, the recent selling operations have not taken the price of the US dollar against the Japanese yen (USD/JPY) off its upward path. As we mentioned before, the move above the 148.60 resistance will be important for more bull control. Therefore, we expect the psychological resistance of 150.00 as soon as possible, from which the technical indicators will move towards saturation levels. Strong buy. After the Japanese Central Bank announced yesterday, we confirm the trading policy of buying the currency pair from every falling level. According to the performance on the daily chart below, there will be no first break of the trend without moving towards the support level of 145.75.
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