- Despite the long-awaited rate hike in Japan, the USD/JPY pair continued its upward trend, with gains reaching the resistance level of 150.48 at the time of writing the analysis.
- It seems that the rate hike and the wording of the bank's statement were not to the liking of investors in terms of causing a significant and strong shift in the Bank of Japan's negative interest rate policy.
- Prior to that, the Japanese yen had weakened to around 149 yen per US dollar, hitting its lowest level in more than a week as investors awaited the Bank of Japan's policy decision this week, which is expected to exit the negative interest rate policy. Moreover, these bets came as major Japanese companies agreed to larger-than-expected wage increases in annual spring wage negotiations last week.
For their part, Bank of Japan officials have repeatedly stated that they could start normalizing monetary policy if the positive cycle between rising wages and inflation continues. However, analysts have pointed out that the market has already factored in this potential policy shift, and there are concerns about the slow pace of tightening. Externally, the Japanese yen also faced pressure from stronger-than-expected US inflation data, which weakened expectations of an early rate cut by the Federal Reserve.
Meanwhile, speculation about a possible historic rate hike by the Bank of Japan is dominating the start of the week, as the US Federal Reserve, as well as the central banks of the UK, Switzerland, and Australia, will announce their latest policy decisions.
Overall, investors are betting that the Bank of Japan will not wait until its April meeting before scrapping its controversial negative interest rate policy, and they got a boost last Friday from preliminary wage data. Rengo, Japan's largest labor union, announced that its members have agreed to wage increases averaging 5.28% for 2024, the largest in 33 years. Signs that Japan's biggest companies are raising wages at an inflationary pace have already prompted several Bank of Japan board members to hint at the possibility of raising wages in March instead of April. Furthermore, their optimism was not shared by Bank of Japan Governor Kazuo Ueda, who remained somewhat skeptical in recent comments and did not expect a policy shift before April.
Overall, traders are also not entirely convinced, seeing only a 44% chance of a 10-basis point rate hike in March. This leaves the Japanese yen price vulnerable to upside risks if the Bank of Japan finally decides to exit negative interest rates on Tuesday, which have been in place since 2016. However, the decision itself may only provide a temporary lift for the Japanese currency. Much of the yen's decline over the past week was due to growing doubts about whether the Bank of Japan will tighten policy significantly. Therefore, if the Bank of Japan raises interest rates but signals it is a “one and final” step, the yen will have difficulty holding on to any immediate gains. Also, there is uncertainty about whether or not policymakers will also abandon yield curve control.
USD/JPY Technical analysis and Expectations Today:
The overall trend for the USD/JPY pair remains bullish. Breaking the psychological resistance at 150.00 continues to encourage bulls to control the direction strongly. It is preparing for testing stronger and closer peaks, currently at 150.75, 151.20, and 152.00 respectively. Technically, those levels will drive all technical indicators towards levels saturated with buying pressure. Eventually, we expect the USD/JPY to remain on its upward trajectory until reactions to the announcement from the US Federal Reserve this week.
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