Japanese Yen Rallies on Bank of Japan’s Ueda Comments. Will USD/JPY Reverse?

Japanese Yen, USD/JPY, US Dollar, BoJ, Ueda, Intervention, JGB, Yields, – Talking Points

• USD/JPY recoiled lower on Monday after remarks from BoJ Governor Ueda
• The BoJ might be prepping the market for policy adjustments further down the track
• The yield spread between JGBs and Treasuries might be worth watching

The Japanese Yen has had a wild start to the week after comments from Bank of Japan Governor (BoJ) Kazuo Ueda opened the door to speculation for the end of its negative interest rate policy (NIRP).

In early Asian trade on Monday morning, USD/JPY retreated from its 10-month peak of 147.87. It traded down to 146.67 before steadying around 147. Today’s low was just above Friday’s low of 146.59.

The Yomiuri Shimbun newspaper is reporting that Ueda san may tilt monetary policy if wages and prices rise, citing that there are various options.

He made it clear that any policy adjustment will be dependent on circumstance by saying, “We have a variety of options if economic and price conditions turn upward.”

However, the market might have got ahead of itself in seeking tightening from the BoJ. Ueda also remarked, “There is still some way to go before the price target can be realized. We will continue our persistent monetary easing policy.”

The BoJ has a policy rate of -0.10% and is maintaining yield curve control (YCC) by targeting a band of +/- 0.50% around zero for Japanese Government Bonds (JGBs) out to 10 years.

The bank has become flexible on YCC implementation, recently allowing the 10-year Japanese Government Bond (JGB) to yield above 0.50%. It traded at 0.69% today, its highest return in almost 10 years.

The spread between JGBs and Treasury yields might be worth paying attention to as there has traditionally been a strong correlation to USD/JPY. The next few sessions may see some volatility in this part of the market.

USD/JPY AND YIELD SPREAD BETWEEN 10-YEAR TREASURIES AND JGBS

Chart created in TradingView

Governor Ueda’s comments follow some soft jawboning last week from Masato Kanda, Japan’s Vice Minister of Finance for International Affairs and BoJ board member Hajime Takata.

It might be reasonable to expect more remarks from Japanese officials if USD/JPY makes another move to the topside.

The market is generally not anticipating physical intervention until the price moves toward 152.00, if at all. The November 2022 high was 151.95.

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USD/JPY TECHNICAL ANALYSIS SNAPSHOT

USD/JPY made a 10-month high last Tuesday before consolidating in a 146.59 – 147.87 range. A breakout on either side of the range could see momentum evolve in that direction.

If a bullish run emerges, resistance might be at the prior peaks of 148.85 and 151.95.

On the downside, support may lie at the breakpoints in the 145.05 – 145.10 area ahead of the prior lows near 144.50 and 141.50.

The 34-day Simple Moving Average (SMA) is also near 144.80 and may lend support.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter