TickMill Market Analyst, James Harte takes a look at the Japanese Yen for us:
The Japanese Yen has come under pressure across the European open on Friday following seemingly dovish comments from incoming Bank of Japan (BOJ) governor Ueda. Speaking at the Japanese Diet, Ueda told members of parliament that he felt the BOJ’s ultra-loose monetary policy is still appropriate for now and signalled that he is in no rush to raise rates. There has been a great deal of speculation regarding Ueda’s views on monetary policy and with these comments marking his first formal remarks, traders have gained some important clarity. The initial market reaction has seen the Nikkei rallying while JPY comes off.
Uncertainty Ahead for Japan
While Ueda suggested there was room for adjusting the bank’s yield curve control target, urging the BOJ to be creative with monetary policy, timing was still the key issue to be resolved, according to Ueda. In terms of the broader outlook for the economy, Ueda cited his view that the surge in inflation was a function of elevated import costs, not heightened demand, and warned that there is a great deal of uncertainty in the Japanese economic outlook.
Continuity For Now
Further out, Ueda said that while it will likely take some time before trend inflation is sustainably at or above 2%, once there the BOJ consider normalising monetary policy. Notably, Ueda said that this would be achieved through hiking rates on deposits held at the bank by financial institutions rather than selling bonds. The key message for now is one of continuity with Ueda clearly not looking to rock the boat. With this in mind, JPY is likely to remain pressured while Japanese asset prices should remain supported.
- Armchair Academy: Introduction to Micro FX Futures
- Fintokei and the rise of the next generation of prop traders
- Japan small and mid-cap opportunity intact despite US and Japan elections
- Taking some chips off the table – trader’s weekly playbook
JPY Technical Views
The rally off the lows in USDJPY has seen the market breaking out above the bear channel from last year’s highs and above the 132.91 level. While above here, the focus is on a continuation higher towards the 139.33 level, in line with bullish momentum studies readings. Retail market remains heavily short, encouraging a further push higher.
