USDJPY Continues Lower

The Japanese Yen is rallying firmly against the Dollar today with USDJPY extending its recent decline. The pair has fallen from high of around high 151 to current levels around low 145. The shift in outlook on the Fed has been the main driver of the move lower in recent months. However, the markets tentatively hawkish BOJ outlook is helping amplify the selling. Traders have been speculating for most of the year that the BOJ will soon shift on monetary policy. While the bank has remained steadfast in its commitment to easing, there are growing signs that a potential shift might be coming.

Wage-Hike Risks in Japan

Speaking today of his meeting with Japanese PM Kishida, BOJ governor Ueda said that Japanese wage-hike risks were included in its outlook for next year. The BOJ governor has previously signalled that March might be a time when the bank would review its monetary policy to see if a change is needed. This comes on the back of several small operational adjustments this year to allow for greater flexibility (upward movement) in its yield curve control program.

BOJ Tightening Coming?

Many have seen this as laying the groundwork for a potential shift in rates and on the back of Ueda’s comments over 2024 wage-hike risks, traders are clearly sensing a stronger likelihood of BOJ policy normalisation early next year. Against this backdrop, there is plenty of room for USDJPY to continue lower near-term, particularly if tomorrow’s US jobs data comes in below forecasts.

Technical Views

USDJPY

The sell off in USDJPY has seen the market breaking down through the rising trend line from YTD lows. Price is now testing support at the 145 level which, if broken, opens the way for a move down to 142 next, in line with bearish momentum studies readings.