BoJ verbal intervention – OCBC

USD/JPY rose sharply after BoJ kept policy rate on hold yesterday. USD/JPY’s rise can also be attributed to the rise in UST yields as Fed guided for slower pace of rate cuts. The pair was last seen at 156.71. Back to BoJ, Governor Ueda’s remarks seem more cautious and appear to be ‘buying time’. He said that the ‘lack of wage info’ was one reason why policymakers held rates. He did say that ‘certain degree of info expected on wages by next meeting’, OCBC’s FX analysts Christopher Wong notes.

BoJ seems to be buying time

“He also touched on wanting to see more wage hike sustainability. He also mentioned that it will take a long time before the full picture is clear for both the spring wage negotiations and the Trump administration’s policies. That being said, he did warn that the BoJ must consider the risk of falling behind the curve carefully as real interest rates remain at very low levels. Chance of hike at the next MPC (24 Jan) is probably still live. But for now, the reluctance of BOJ and the guidance for Fed pause suggests that USD/JPY may continue to face intermittent upward pressure.”

“This morning, in response to the sharp 300pips fall in JPY against USD, Finance Minister Kato said authorities will take appropriate action if there are excessive moves in currency markets. Currency Chief Mimura also spoke about taking appropriate response if excessive FX moves. Verbal intervention in the face of strong USD trend and policy inaction can only be at best in slowing JPY’s bout of depreciation pressure. What can stop JPY from further weakening in the near term would be a less dovish BoJ, some guidance in expectations for BoJ hike in due course and/or a softer USD.”

“Bullish momentum on daily chart intact while RSI show signs of turning from near overbought conditions. Resistance at 158, 158.90 levels. Support at 156.67 (76.4% fibo retracement of Jul high to Sep low), 154.50/155 levels.”