BOJ on Deck

USDJPY is starting a week of key central bank meetings with a mildly bid tone as traders brace for both the BOJ and the Fed to rule on rates this week. The BOJ is due overnight tonight and there is a great amount of uncertainty over whether the bank will finally begin the process of policy normalisation or once again keep ultra loose policy in place.

Will They Won’t They?

The bank has signalled in recent months that March is the likely time for any such shift in policy. With inflation holding above target and with other Japanese indicators improving, traders have been calling on the bank to normalise rates since late last year. While the bank has so far been steadfast in keeping ultra-loose policy in place, verbal signals have emerged in recent months with policymakers acknowledging that the time for lifting rates could soon be here, pointing to March as a potential lift-off date.

Uncertainty Ahead of Meeting

However, speaking last week, BOJ chief Ueda seemed to dilute these expectations somewhat, warning that weaknesses remain in the Japanese economy. On the back of these comments, traders are wary now that perhaps the BOJ won’t lift rates this month but will instead offer hawkish guidance setting up a potential summer hike. In this scenario, JPY is likely to stay muted near-term. However, if BOJ catches the market off-guard at this point and announces a rate hike, this should see JPY firmly bid, particularly if the BOJ signals further a fast pace of tightening to come this year.

Technical Views

USDJPY

The move higher in USDJPY has seen the pair trading back up to test the 148.98 level. If we hold above here, 151.81 will be the next objective for bulls. To the downside, 145 will be the initial target for bears should we break lower tonight.