January 24, 2025 at 11:30AM
It’s been a back and forth day for the pair as traders are still working out what to make of things after the BOJ policy decision today. On the one hand, the dollar remains softer across the board and vulnerable as tariff fears are receding. That being said, the bond market isn’t exactly buying into that story all too much. On the other hand, the BOJ delivered a rate hike and upped their inflation forecasts. But Ueda’s presser was more about keeping options open than trying to rush any further rate hikes.
There’s a balance to be struck in there somewhere but perhaps also depending on the US PMI data later.
If you take that the BOJ isn’t going to rush another rate hike despite their more bullish tone about the spring wage negotiations, then the market pricing for another rate hike in July at the earliest sounds about right.
If so, that will limit the scope for any further yen strength on potential policy divergence between the Fed and BOJ.
The next spot to watch is the bond market, and that’s a tricky one. While tariff fears are abating, yields are continuing to stay underpinned for the most part. 10-year Treasury yields are at 4.635% currently, flat on the day. Bond traders are still sensing something is up, so unless they play ball too then it might be hard for USD/JPY to convince of a sustained decline.
For now though, the technical picture is also a key consideration. The pair has struggled to find a break below 155.00 since last week and that is continuing today as well.
The low earlier touched 154.83 during Ueda’s press conference but as seen on the hourly chart above, it did not firmly break below the 155.00 level. That’s giving buyers some room to work with in driving price back above the 100-hour moving average (red line) again now.
While there might not be cause for USD/JPY to race back towards the start of the year highs above 158.00, it’s tough to push for a downside view as well unless the bond market ends up conforming to the broad dollar declines elsewhere. That’s the only sticking point in my view with USD/JPY at the moment.
Because if you factor in what’s priced for the Fed and BOJ, it’s not too much changed compared to where we were since the turn of the year. Trump’s theatrics have certainly impacted things by causing reactions to headlines. But so far, they’re not ones to impact the outlook for central banks too significantly.
In time, we’ll see how that plays out and perhaps there will be more influence. But for today, it could just be a simple case of buyers holding the line when it matters as the BOJ delivers as per expected and the bond market isn’t quite matching up with the broader dollar drop. The US PMI data could still change all of that later of course.
I’m sympathetic to the view that there is scope for further downside in USD/JPY from this point. But from a technical perspective, it needs a break of 155.00 to vindicate the start of said momentum.
This article was written by Justin Low at www.forexlive.com.
