- New indications of the Bank of Japan's imminent shift away from negative interest rates pushed the USD/JPY currency pair lower today, with losses extending to the 149.62 support level and stabilizing around it at the time of writing after a week of stability with gains around the 150.85 resistance level.
- Bank of Japan board member Hajime Takata sent a strong signal that the issue of ending Japan's negative interest rate policy is gaining momentum, comments that pushed the yen and government bond yields higher.
Takata said in a speech to local business leaders in Shiga, western Japan, on Thursday, "There are doubts about the Japanese economy, but my view is that the target price is finally on the horizon." He added that Japan is "at a turning point in the belief that wages, and inflation will not rise." Takata added to that message at a news conference later in the day when he told reporters that it is "good to change the speed by one notch" so that monetary policy is consistent with economic conditions. Also, the official repeated the message, previously conveyed by Governor Kazuo Ueda and Deputy Governor Shinichi Uchida, among others, that even if the bank ends the negative rate, the policy settings will remain accommodative.
Also, Takata said, “We will not keep hiking over and over again.”
As a result, the US dollar pair against the Japanese yen was exposed to selling operations, as investors prepare for a possible narrowing of the interest rate difference between Japan and the United States of America. Als, the government bond yields rose. Moreover, the Japanese yen trimmed its gains after Takata pledged to keep monetary policy settings loose. Overnight swaps currently calculate a 34% chance of a rate hike at the Bank of Japan meeting on March 18-19. On Wednesday, it was at 21%.
Regarding the chances of a policy change in March, Takata hedged his views. He told reporters that he would like to think about the action to be taken at the meeting and the next meeting in conjunction with his view that the target price is on the horizon. Takata's comments, who is seen as a neutral member of the nine-member board, are likely to support market speculation that the bank is preparing to raise interest rates for the first time in Japan since 2007 in the coming months. The next meeting - in March - is likely to be of interest to Bank of Japan watchers as the possible timing. Most economists are betting on the move to happen in April in recent polls.
The Japanese official added, “We need to consider flexible and smart steps including exiting, for example, the end of the yield curve control framework, the negative interest rate and what to do with the override commitment.” Takata's speech follows Ueda's comments last week that indicated growing confidence about the prospects of achieving the stable inflation target even as data emerged that showed the economy had fallen into recession. In a speech in September, Takata twice referred to the need to patiently continue broad monetary easing. He did not mention such needs today.
USD/JPY Technical analysis and Expectations Today:
There is no doubt, and as we mentioned before, that the signals for the future of global central bank policy, amid a sharp discrepancy between the US Federal Reserve and the Bank of Japan, will remain factors that determine the fate of the currency pair, the US dollar against the Japanese yen “USD/JPY”, which is what happened in the first signals from the Bank of Japan. Today, there will be the US inflation reading, which is favoured by the US Federal Reserve, and the strong signals of inflation will return the US dollar against the Japanese yen to its broader upward path. Vice versa, if the US inflation reading comes lower today and with the Bank of Japan’s hints, the currency pair will continue the current selling operations, not ruling out support at 148.00.
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