The yen is actively losing ground against the dollar. The USD/JPY pair showed an upward trend even yesterday when the U.S. dollar index was under some pressure (DXY again "dived" into the 101-figure area). This indicates that the pair is growing not only (and not so much) due to the strengthening of the American currency but also due to the weakening of the yen.
Notably, at the beginning of this week, USD/JPY sellers tried to consolidate around the 140-figure mark, i.e., near multi-month lows. There was a corresponding news trigger – on December 27, when the markets were already closed, Bank of Japan Governor Kazuo Ueda stated in an interview that "the likelihood of ending the negative rate policy in 2024 is not zero." According to him, the regulator plans to carefully study the prospects of wages in the next fiscal year (which, I remind you, begins in spring) to determine whether wage growth will translate into inflation. He also mentioned the increasing likelihood of achieving the Central Bank's 2% inflation target and the readiness to consider changing monetary policy.
It cannot be said that such rhetoric was overly hawkish. However, following the December meeting, Ueda showed no signs of moving towards exiting negative rates. The regulator maintained a dovish tone in its accompanying statement and reported that the Central Bank will continue to support financial stability "and will not hesitate to take additional easing measures if necessary."
Therefore, Ueda's aforementioned clarifications could indeed be interpreted as a hawkish signal. However, the USD/JPY bears failed to capitalize on this fundamental factor. After updating the local low (140.80), the pair made a 180-degree turn and surged upwards. In just four days, the price increased by almost 500 points, surpassing the 145.00 target for the first time in the last three weeks.
Remarkably, the yen is ignoring its macroeconomic statistics. For example, today in Japan, the consumer confidence indicator was published, which first was in the green zone (37.2 points with a forecast growth to 36.4), second, updated the annual high, and third has been consistently rising for the third consecutive month.
But the USD/JPY pair ignored this release, continuing to climb upward stubbornly. The main reason is the Bank of Japan's soft stance.
During his speech yesterday, Ueda once again indicated that the regulator is waiting for the results of the annual negotiations between union representatives and businesses this spring before making any drastic decisions. He stated that the members of the Central Bank want to ensure that the wage growth in 2024 will be "sufficiently strong" to support consumption. Ueda also expressed hope that the Japanese economy can balance wage and inflation growth.
Given this position, the question of calibrating monetary policy will not be relevant until at least April this year. In practical terms, it will most likely be considered (discussed) at the June meeting, provided that the stated conditions are conducive.
Some market participants had previously admitted the possibility that at the January meeting, which will take place at the end of this month, the Bank of Japan might gradually start laying the groundwork for a policy change, in the context of tightening the wording and even announcing (long-term) plans to end negative rates.
However, at this point, the likelihood of this scenario is zero. The earthquakes that occurred in central Japan at the beginning of the year have played a role in this. At least 50 people died, and about 100 are under the rubble. The epicenter of the earthquakes was in Ishikawa Prefecture, which was most affected by the natural disaster. Fires following the tremors destroyed over a hundred residential houses and buildings.
Of course, this fundamental factor only indirectly affects the position of the Japanese regulator, but if we consider all the preceding comments and releases together, we can come to a definite conclusion: the January meeting of the Bank of Japan will not differ much from the December one. The regulator will not prepare the ground for future (possible) changes, as these changes are still very much in question.
Thus, the USD/JPY pair has not exhausted its growth potential. On the four-hour chart, the price is between the middle and upper lines of the Bollinger Bands indicator, and above all lines of the Ichimoku indicator, which has formed a bullish signal "Parade of Lines." The nearest target of the upward movement is the 145.90 mark (the upper line of the Bollinger Bands on H4). The main target is much higher, at 148.80 – this is the lower boundary of the Kumo cloud on the D1 timeframe.