Yen Surges Amid Speculation Over BoJ's Monetary Policy Shift

The yen surged to a five-week high against the dollar, driven by reports suggesting that the Bank of Japan (BoJ) is considering both raising interest rates and adopting a new quantitative monetary policy framework. Jiji news agency revealed that the BoJ is contemplating a framework that outlines the anticipated amounts of upcoming government bond purchases. Simultaneously, Reuters reported that an increasing number of BoJ policymakers may support ending negative interest rates this month, anticipating favorable outcomes from the annual wage negotiations.

The potential move to end negative rates could lead to a restructuring of the BoJ's extensive stimulus program, which includes bond yield control and the acquisition of riskier assets. The upcoming March 18-19 meeting presents a close call, with uncertainty about whether the trigger will be pulled then or postponed until the subsequent meeting on April 25-26. Policymakers are closely monitoring annual wage negotiations on March 13 and the first survey results from labor umbrella Rengo on March 15 to gauge the timing of stimulus phase-out.

Real wages for Japanese workers declined in January for the 22nd consecutive month but at a slower pace, influenced by weakening price pressures. Despite this, BOJ Governor Kazuo Ueda remains hopeful that this year's labor-management pay negotiations will yield substantial results to boost consumption.

The imminent annual wage talks, known as "shunto," are expected to result in significant pay hikes by major Japanese companies. Economists anticipate an average increase of around 3.9%, the highest in 31 years, strengthening expectations for the BoJ to end negative interest rates by April. Rengo, Japan's largest trade union confederation, has demanded a 5.85% pay increase, and unions across various industries are seeking record pay hikes.

Revised GDP figures for the fourth quarter of the previous year indicate that Japan avoided a recession, with increased company spending on facilities and equipment offsetting a decline in consumer spending. Export-heavy Japanese companies benefited from a weaker yen, leading to substantial profits.

However, recent data reveals a sharp decline in Japanese consumer spending in January, attributed to various factors, including factory suspensions and lower energy bills. Despite concerns about some economic weaknesses, there is optimism that consumer spending will gradually recover.

On the global front, the dollar showed modest weakness against major peers, marking its worst weekly performance this year. Mixed economic data kept the possibility of an anticipated June interest rate cut from the Federal Reserve on the table. Nonfarm payrolls increased last month, and the unemployment rate rose to 3.9% in February after remaining steady at 3.7% for three consecutive months. As a result, this could lead to a more favorable trajectory for the Yen in the upcoming period. It is anticipated to stabilize within the existing framework in the short term and experience a slight strengthening in the subsequent period.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 147.15, 147.29, 147.52

Support : 146.69, 146.55, 146.32

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 146.29 – 146.69 is touched, but the support at 146.69 cannot be broken, the TP may be set around 147.30 and the SL around 146.09, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 147.15 – 147.55, TP may be set around 147.90 and SL around 146.49, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 147.15 – 147.55 is touched, but the resistance at 147.15 cannot be broken, the TP may be set around 146.69 and the SL around 147.75, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 146.29 – 146.69, TP may be set around 146.11 and SL around 147.35, or up to the risk appetite.       

Pivot Points Mar 11, 2024 02:52AM GMT