Market update: Japanese yen rallies on Bank of Japan’s Ueda comments

[MongiIG]

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

 

Source: Bloomberg

 

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Daniel McCarthy | Strategist, | Publication date: Monday 11 September 2023 

Ueda pushes on with 'persistent monetary easy policy'

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 ten-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.

State to try 'variety of options' if wages, prices rise

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 realised. 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 ten years.

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

 

Source: TradingView

Expect some USD/JPY volatility

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.

USD/JPY technical analysis

USD/JPY made a ten-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.

USD/JPY 24-day simple moving average (SMA) chart

 

Source: TradingView

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