The USD/JPY pair experienced a 0.33% decline following the Bank of Japan’s (BoJ) decision to maintain its ultra-loose monetary policy. The BoJ’s widely expected move retained the key short-term interest rate at -0.1%, with the 10-year bond yield targeted around 0%. The BOJ reiterated its commitment to negative interest rates and the 1% upper limit on 10-year JGB yields, effectively ensuring continued monetary easing in the foreseeable future. This stance aligns with Japan’s sluggish inflation, which dipped to a 17-month low in December 2023.
Governor Ueda’s comments suggesting a gradual rise in the likelihood of achieving the 2% inflation target and his acknowledgement of the increasing need for policy normalization cast a shadow of doubt on the longevity of the ultra-loose policy. This signals a potential shift towards tighter monetary policy in the future, albeit not in the immediate term. Investor sentiment remains mixed. The continuation of easing is perceived as negative for the yen, potentially pushing the USDJPY higher. However, Ueda’s hawkish undertones introduce uncertainty, causing some investors to hold back on aggressive bets.
The 4-hour chart shows that the USDJPY pair is currently trading at 1.47.648, with the price action trading below the 23.60% Fibonacci retracement level after the bears’ attempt to push the price lower found significant support at the 38.20% Fibonacci retracement level lower.
The 20-SMA (green line) trades comfortably above the upward-sloping 50-SMA (blue line) and 100-SMA (orange line), suggesting underlying bullish momentum. However, the recent dip indicates a potential test of these levels. The falling RSI (49.10) below the 50 level shows the presence of bearish pressure. A break below the RSI-based MA could further confirm the downward trend.
Short-term trading opportunities could exist towards the resistance level at the 148.315 price level should the push below the 23.60% Fibonacci retracement level falter. A break above the initial resistance could confirm the bullish momentum, likely bringing the 148.801 resistance level into play.
Conversely, a successful push below the 23.60% Fibonacci retracement level could offer short-term trading opportunities towards the initial support at the 38.20% Fibonacci retracement level (147.107). A break below the 147.107 level would likely bring the 50.00% Fibonacci retracement level (146.584) and 61.80% Fibonacci retracement level (146.060) support level into play in the short term.
The short-term outlook for USDJPY is a tug-of-war between bullish momentum and bearish pressures. While the BoJ’s dovish stance currently underpins the yen, Governor Ueda’s comments introduce a potential shift in the wind. A sustained push above the 23.60% Fib and initial resistance at 148.315 could trigger further bullish momentum towards 148.801. A failure to hold above the 23.60% Fib and 148.315 could signal a bearish reversal, potentially targeting the 38.20% Fib and initial support at 147.107.
Sources: TradingView, Trading Economics, Bank of Japan.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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