BoJ

USD/JPY tumbled on Thursday on speculation the BOJ may move pre-emptively to lift interest rates before wage pressures have materialised. Such a move would be economically risky and go against recent BOJ statements.

Bank of Japan (BOJ) Governor Kazuo Ueda is not giving up on normalising monetary policy despite significant uncertainty over the outlook for the Japanese and global economies, putting USD/JPY under modest pressure on what’s been an otherwise quiet session in Asia.

USD/JPY bulls are defending support in the 147.00 area, but the pair is vulnerable to a big breakdown from here...

USD/JPY traders barely acknowledged the release of Japan’s October inflation report, reinforcing the view the only thing that matters for the pair right now is developments in the US economy, unless the Bank of Japan (BOJ) signals or starts to normalise monetary policy.

Whether it’s any major FX pair against the yen or the Nikkei 225, the last of least resistance right now seems to be higher with the BOJ maintaining its ultra-dovish stance.

USD/JPY is trading 40 pips away from multi-decade highs as upstream inflationary pressures in Japan are coming off hard. Perhaps that explains we've had no verbal intervention attempts from the government today?

If you believe the Fed is done hiking rates and will be forced to ease policy aggressively next year, it’s hard to be bullish USD/JPY or the Nikkei 225 given the role yield differentials and FX fluctuations have played in underpinning both this year.

Japan’s Nikkei 225 has endured a whirlwind 24 hours, mirroring the USD/JPY in the wake of the Bank of Japan’s (BPJ) October monetary policy meeting. It’s surged more than 1000 points from the lows hit on Tuesday, largely reflecting stiffening tailwinds for Japanese exporter earnings.

Geopolitics, inflation reports and sentiment towards Chinese markets will likely dominate proceedings for AUD/JPY and crude oil this week, putting their respective uptrends to the test during a time when investor risk appetite is particularly weak.

For USD/JPY and Nikkei 225, what the BOJ chooses to do near-term will likely be felt well into the future.

It’s been a turbulent 24 hours for USD/JPY and Nikkei 225 as traders attempt to digest the impact from the hot “supercore” inflation reading in the US released overnight on Thursday.

Should the BOJ fail to reach escape velocity from ultra-easy monetary policy settings, it will have implications for the Nikkei 225 and USD/JPY as we move towards 2024.

Nikkei 225 sits on a major support, making near-term price action potentially important for its longer-term trajectory.

USD/JPY likely to continue grinding higher as bulls navigate the evolving threat posed by potential Bank of Japan intervention.

Should the Japanese government order the Bank of Japan to intervene in FX markets, it deserves the savage USD/JPY bounce that will almost inevitably be coming its way.

The next few days will be pivotal for USD/JPY as rate decisions from the Fed and BOJ collide, providing an environment where we could get an explosive move in either direction.

Whilst the Fed are expected to hold rates steady in September, next week’s FOMC meeting also includes the quarterly staff projections. And changes to dot plot or CPI estimates can be as good as a hike where market reactions are concerned. The odds of another BOE are next week are not as high as they were, which makes the preceding inflation report paramount to expectations for their next decision. And whilst the BOJ are unlikely to act, that is no reason to drop your guard given their tendency to surprise once in a while. We also have flash PMIs for major regions and inflation data to mull over.