Chapter 58 10/30 USDJPY: Bullish Trend Remains Intact Even with Retracement
Summary: The USDJPY fell to well above 150.00 last Friday, dangerously close to its lowest levels since August 1990. This has raised the possibility of intervention by Japanese authorities and added pressure on the Bank of Japan to consider tightening its monetary policy. So far, the yen has depreciated by over 12% in 2023, making it the worst-performing G10 currency.
Fundamentals
This week, global financial markets eagerly await decisions and insights from three major central banks, along with a series of key economic data releases.
Starting from Tuesday, the Bank of Japan (BoJ) is expected to firmly maintain its current monetary policy, including the -0.10% short-term interest rate target and Yield Curve Control (YCC) parameters. However, the focus will be on the Bank's new inflation forecasts in its quarterly economic activity and price outlook report. Market expectations lean towards an upward revision of core inflation forecasts for the 2024 fiscal year to 2%.
Discussion regarding the BoJ's exit from ultra-loose monetary policy has been ongoing, but it doesn't appear to be imminent. A recent Reuters survey of 27 economists showed that only 17 expect the BoJ to end its negative interest rate policy by the end of 2024, with the rest predicting "2025 or later." Among those forecasting a change in 2024, 10 economists see April as a possible time for the end of negative rates.
We anticipate the BoJ will keep interest rates unchanged at the end of its two-day policy meeting on Tuesday, but it may raise inflation and real GDP growth forecasts for the fiscal year ending in March 2024. Meanwhile, the BoJ might make minor adjustments to the way it controls the yield curve, possibly eliminating the ±0.5% yield range or altering related language.
Additionally, the BoJ may abandon YCC or negative interest rate policies at future policy meetings, which could accelerate further depreciation of the yen. Timing-wise, the BoJ is most likely to make policy adjustments at its April 2024 meeting.
Currently, BoJ Governor Kazuo Ueda is in a tight spot. If he stands pat on policy this week he risks sending the yen to a multi-decade low and opening up his yield control program to speculative attack in the market. If he raises the 10-year yield cap, whether explicitly or implicitly, it may lead to long-term interest rates rising to levels inconsistent with economic fundamentals, endangering his goal of achieving stable inflation. Insiders suggest that the BoJ may monitor yield trends until the last minute before deciding whether to adjust YCC, indicating a challenging policy discussion this week.
Technical Analysis
The USDJPY pair broke through the key psychological level of 150.00 last Thursday, reaching a new one-year high at 150.76. Nevertheless, the asset ended the week without the risk of official intervention, and it currently maintains a neutral bias during intraday trading.
On the upside, a break above 150.76 would signify a broader rebound, retesting the high at 151.93.
On the downside, a breach of the minor support level at 149.30 would lead to a further correction of the downtrend. However, as long as the support at 147.28 is held, the outlook remains bullish, even if a deep retracement occurs.
From a broader perspective, although the asset has shown strong upward momentum from 127.20, it can still be considered an extension of the corrective pattern that began from 151.93 (the high point in 2022). A sustained break above 151.93 by the bulls will confirm a recovery in the long-term uptrend.
Overall, the USDJPY has extended its 2023 upward trend to new highs this week, but concerns exist in the market due to a lack of strong momentum, suggesting waning buying interest. Nevertheless, the focus is expected to remain on the upside unless the price drops below 149.30. In terms of trading strategy, it is recommended to buy the dips.
Trading Recommendations
Trading Direction: Long
Entry Price: 148.30
Target Price: 152.25
Stop Loss: 147.00
Valid Until: 2023-11-13 23:55:00
Support: 149.30, 148.73, 148.28
Resistance: 150.15, 150.52, 150.75
