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Holiday Season Trading: USD/JPY Faces Pullback, Nikkei Holds Strong

USD/JPY Nikkei Holds Strong

Explore the holiday season dynamics: USD/JPY anticipates pullback, while Nikkei holds strong. Stay updated on market trends.

In a highly anticipated move, the Bank of Japan (BoJ) decided to maintain its negative interest rates, keeping short-term rates at -0.1%, and left the yield curve control unchanged in its final meeting of 2023. 

The Japanese Yen loses ground as the Bank of Japan opts to keep rates unchanged; concurrently, the Nikkei experiences a substantial surge, reaching its yearly peak amid an optimistic economic outlook.

 However, the Yen dropped moments after the announcement, indicating that some market participants may have hoped for a different outcome.

He addressed the media after the decision. Governor Kazuo Ueda acknowledged the economic uncertainties but expressed optimism about modest, above-trend growth. He highlighted the need for compelling evidence of consistent inflation and wage growth increases, key factors for any potential policy pivot in 2024. The Japanese economy, recovering from a Q3 contraction of 0.7% (quarter-on-quarter), is expected to benefit from lower oil prices in the year’s final quarter.

Holiday Season Trading: USD/JPY Faces Pullback, Nikkei Holds Strong

The Bank of Japan’s stance for 2024 relies on attaining consistent inflation and wage growth. Ueda stressed the importance of the ‘wage-price virtuous cycle’ and stated that the bank anticipates underlying inflation to rise gradually through FY 2025. However, he cautioned that the bank lacks the confidence to foresee sustainable, stable inflation.

As speculation around possible policy shifts continues. The focus turns to upcoming wage negotiations in January, with trade unions expected to present their demands. March’s negotiation conclusion offers crucial info, influencing BoJ’s Q2 decision on the potential abolition of negative interest rates.

The USD/JPY currency pair experienced a modest boost immediately after the announcement, followed by a volatile spike and subsequent stabilization around intra-day highs. Market participants closely monitor forthcoming data releases, specifically Japanese inflation data, and US personal consumption expenditure (PCE) figures, anticipating possible developments that could influence the market.

For USD/JPY, the near-term outlook suggests a potential pullback, with support around 141.50. Traders eye resistance levels at 145 and 146.50, considering possible areas to end the pullback. As the holiday season approaches and trading volumes decrease, selling rallies may gain traction amid a lack of sustained momentum to defy prevailing trends.

Meanwhile, the Nikkei surged in response to the BoJ’s decision to maintain the status quo. The index demonstrated positive price action near its yearly high of 33,770, bouncing off the 50-day Simple Moving Average (SMA). Moreover, Dynamic support levels are identified at the 50-day SMA and 32,307, signaling potential bullish follow-through. Suppose today’s move can find continued momentum. Traders closely monitor the index’s performance against likely resistance levels as the year approaches.

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