Currency Update: USD/JPY aims for 150 as BoJ hints at cautious negative rate exit, softening yen amid US data boost.
In a significant development for currency markets, remarks from the Bank of Japan’s Deputy Governor Shinichi Uchida have weighed on the yen, indicating a cautious approach to exiting negative interest rates. Uchida’s statements shed light on the central Bank’s stance, hinting at a revision of stimulus measures once the inflation target of 2% is sustainably met and stable. This condition stands as one of the prerequisites before considering interest rate hikes.
Uchida clarified that further hikes might not be imminent even if the Bank adjusts interest rates to zero or positive levels. Market expectations have already factored in a departure from negative interest rates, shifting focus to the timing and scale of potential rate hikes. Given Uchida’s track record of offering policy insights, investors closely monitor his comments.
USD/JPY on the Rise: BoJ Cautious Stance Impacts Yen
However, Uchida hinted that the BoJ would maintain its bond-buying program even after phasing out yield curve control. This strategy aims to retain control over borrowing rates to prevent a scenario where rising interest rates dampen economic activity.
The yen has experienced a general decline following Uchida’s remarks, as evidenced by the constructed Japanese Yen Index, which provides an equal-weighted average of four major yen pairs.
USD/JPY Inches Higher – 150 Back in Sight
USD/JPY has made strides toward testing the psychological barrier of 150, supported by robust economic data from the US. However, it’s worth noting that the dollar has experienced some easing this week.
The currency pair is trading comfortably above the 200-day simple moving average and is currently challenging the recent swing high established in January. Despite the US economy’s resilience, Federal Reserve officials have maintained a neutral stance, suggesting the possibility of multiple rate cuts this year. Minneapolis Fed President Neel Kashkari hinted that current interest rates might be more relaxed than perceived, considering that the neutral rate is higher than before.
As the year progresses, analysts expect momentum to favor downside setups for USD/JPY, mainly as investors closely watch the March and April Bank of Japan meetings for potential rate adjustments. The Bank’s gradual communication of its intentions aims to ensure stable market conditions when transitioning out of negative rates. Key support levels for the pair are at 146.50 and 145.89.
These developments mark a crucial phase for the Japanese yen and the USD/JPY pair as market participants navigate shifting monetary policies and economic data from major economies.