Yen Rallies on BoJ Hawkish Pivot Versus Fed Rate Cuts

The USDJPY pair finds itself in a precarious position, caught between hawkish Bank of Japan (BoJ) pivot expectations, mixed sentiment from the FOMC meeting and a softer risk-off tone emanating from global markets. While a potential escalation of geopolitical tensions and a sluggish Chinese recovery weigh on sentiment, the prospect of a shift away from ultra-loose monetary policy in Japan provides some counterbalance for the Yen. 

Minutes from the December FOMC meeting hinted at a potential policy divergence between the Fed and the BoJ in 2024. Governor Ueda’s recent comments on the possibility of abandoning negative rates further fuel speculation, offering some support to the Yen. 

The December ISM Manufacturing PMI and JOLTS report both pointed towards a slower pace of decline in the US economy, suggesting a less aggressive Fed tightening path. This, coupled with expectations of March rate cuts, puts downward pressure on US Treasury yields and, consequently, the Dollar. The market is now firmly focused on the upcoming PMI reports and the jobs data due on Friday. 


The 4-hour chart shows that the USDJPY’s current price at 144.200 reflects upward momentum, trading above key SMAs [20-SMA (green line), 50-SMA (blue line), 100-SMA (orange line)]. The recent upward crossover of the 20-SMA above the 50-SMA signals bullish sentiment. The RSI, although in overbought territory, suggests potential price stability. 

Short-term trading opportunities could emerge towards the resistance level at 144.728 if the bullish momentum persists. Breaking this resistance could lead to further levels at 145.696 and 146.570. However, short-term trading opportunities could arise towards the initial support at 142.824 should price action sustain a break below the demand zone. A break below the 142.824 level would likely bring the 141.936 and 140.941 support levels into play in the short term. 


The USDJPY faces a delicate balance amid potential policy divergence between the BoJ and Fed. Although the initial weakness of the Yen is evident, the Dollar’s fate hinges on the resolution of uncertainties and market interpretation of the Fed’s future moves. 

While upside potential towards the 144.728 and 145.696 resistance levels exists, overbought RSI and a potential policy pivot by the BoJ suggest the pair might be more susceptible to a pullback in the near term, which could leave the 142.824 and 141.936 support levels firmly in play. 

Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire. 

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

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