Dec 12, 2023

Reports that the Bank of Japan will not hike rates soon have hurt the yen. 


USDJPY – Daily Chart

USDJPY found support around the 142 level and could see a critical support level of around 144.50. 

The yen saw its most significant one-day gain in years last week due to speculation that the BOJ would hike rates as soon as this month. That would’ve brought much pain for carry traders- who use the higher-yielding USD to gain a spread on rates.  

However, leaks from the Nikkei suggested no imminent rate hike from the BOJ. Bloomberg reported that the bank sees “little need to end negative rates in December”. That led to a Sunday surge in the USDJPY as shorts covered and longs roared back. 

According to Bloomberg, Bank of Japan officials made some dovish comments last week but now see “little need to rush into scrapping the world’s last negative interest rate this month”. Officials are said to be seeking further evidence of wage growth. 

The report ended the possibility of an early end to negative interest rates, said Fukuhiro Ezawa, head of financial markets at Standard Chartered in Tokyo. “But in order to see dollar-yen above 147, it will be necessary to confirm there is nothing in the FOMC dot chart or the BOJ meeting,” Ezawa said. 

As further economic data emerges, the pair should provide additional volatility this week. US inflation and a Federal Reserve interest rate decision will be the critical releases on Tuesday (8:30pm HKT) and Wednesday (2-2:30am HKT). 

Analysts expect a dip in inflation and no rate action from the Fed this week.

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