The Bank of Japan (BoJ) has been at the forefront of monetary policy for years, and its latest move is no exception. Earlier this week, BoJ Governor Kuroda made some dovish comments following a strong Japanese CPI report that sent JPY pairs higher. The December CPI report climbed to 4% YoY, as expected, to its highest level since 1981, while the core CPI (excluding fresh fish) increased to 4% YoY after a 3.7% YoY print a month earlier and the ex-food and energy CPI increased to 3%.
Despite inflation being double the BOJ’s 2% target rate, Kuroda remained optimistic about achieving their goal in due time by focusing on wage growth, which he believes will help them “meet our 2 percent inflation target stably and sustainably.” He also confirmed that widening the 10-year JGB was not an error on their part, but rather they intend to keep up with accommodative monetary policy going forward before his resignation from office in April 2023.
Kuroda’s dovish comments seem like good news for investors, who can now look forward to further JPY appreciation against other major currencies as long as these policies remain intact over time until his successor takes office next year.
On Wednesday, the Bank of Japan left its monetary policy unchanged and kept its yield curve control at the same level after increasing it from +/- 0.25% to +/- 0.50% in December. As a result, USD/JPY jumped 340 pips to 131.57, but traders quickly took advantage of this move by selling US Dollars and buying Yen, which pushed the pair back down near where it started on the day. Other JPY pairs followed a similar pattern, with prices struggling to stay below the 61.8% Fibonacci retracement level from 2022 lows to highs at 128:17 before reversing again today following comments from Kuroda that sent prices back towards Wednesday’s intra-day high levels once more.
This reflects an overall trend seen in many currency markets in recent weeks, as central banks around the world continue their efforts for economic recovery through stimulus measures such as low-interest rates or quantitative easing programs, with the expectation that inflationary pressures will follow soon after global growth resumes following pandemic lockdowns. This has led investors to seek higher-yielding assets such as equities or commodities instead, which could explain why we are seeing currency reversals despite initially positive news: they know there won’t be much benefit if inflation doesn’t follow suit eventually anyway!
The USD/JPY currency pair has been trading in a channel on the 240-minute timeframe, even though it broke above the channel on the daily timeframe. This presents an interesting opportunity for traders looking to capitalize on short-term trends.
On the upside, resistance can be found at 131.57, which is near the highs of January 17th, and then 132.18, which is near the top trendline of this shorter-term channel. If prices break through these levels, we could see prices move up to 134.77, the high point on January 6th, before sellers enter and push prices lower once more.
In terms of support, 12722 is the first major area where buyers could step in if the price moves lower than expected after breaking out of this shorter-term channel, with 12636 being the next major area where buyers could step in if the price moves lower than expected. Below that, 12575 represents the bottom trend line for this particular time frame, providing good entry points for those who are bullish about the USD/JPY pair.
Overall, USD/JPY seems to be forming a nice ascending triangle pattern as seen from the 240-minute chart, giving traders great opportunities to take advantage both ways depending upon their risk appetite. For now, it looks like bulls have the upper hand, but any signs of bearishness should not be ignored either, as market conditions keep changing very quickly.
Japan is making headlines this week as its Consumer Price Index (CPI) for December reached its highest level since 1981 at 4% year-on-year. Despite this, Bank of Japan Governor Haruhiko Kuroda continued with his dovish comments regarding monetary policy. As a result, the USD/JPY currency pair moved roughly 200 pips higher on Friday in reaction to these events.
The Japanese economy has been growing steadily over the past few years, and inflationary pressures have been slowly increasing in response to rising consumer spending levels and strong export demand from abroad. This latest CPI data shows that prices are continuing to rise despite efforts by the central bank to keep them under control through loose monetary policies such as quantitative easing and negative interest rates.
This means that investors should continue monitoring Yen pairs closely next week as they could remain volatile due to further developments out of Japan or other global macroeconomic factors such as US economic news releases or geopolitical tensions between China and the United States. It is important for traders who are exposed to long or short positions on any Yen pairs to take these risks into account when managing their trades accordingly, so they can protect themselves against any potential losses if markets move unexpectedly against them.