USD/JPY ANALYSIS & TALKING POINTS
- Dismal Japanese housing start numbers and BoJ messaging limiting JPY upside.
- US 30-year mortgage rates and applications under the spotlight later today.
- 200-day MA retest in focus but unlikely to happen this year.
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JAPANESE YEN FUNDAMENTAL BACKDROP
The Japanese Yen kicked off the post-Christmas trading day on the back foot after the Bank of Japan’s (BOJ) Summary of Opinions (see economic calendar below) revealed a split panel who seem to be erring on the side of caution regarding tighter monetary policy. While all members agreed on maintaining the ultra-loose policy for the time being, future changes and the timing thereof are now being debated. Some key statements made include:
“We must confirm a sustainable and stable achievement of the price target is foreseen in order to end the negative rate and YCC.”
“We must scrutinise wage and price moves under YCC given the strong upward pressure on prices has likely stablised.”
“We are not in a situation where we would fall behind the curve in raising rates, even if we decided to wait after seeing wage talk outcomes next Spring.”
“One member said that the BoJ should not miss the opportunity to normalise policy to avoid the risk of high prices damaging consumption and achievement of the price target.”
“It is important for the BoJ to continue deepening the discussion on issues such as timing of exit from current policy and the appropriate pace of a rate hike thereafter.”
Overall, the news was taken in a less favorable light for the Yen and was consequently supplemented by Japanese housing start data that missed forecasts. The lack of new construction taking place has fallen to its lowest level since August and reinforces a struggling Japanese economy. Ultimately, these data points will be crucial for the pivot to a more normalized monetary policy in the face of elevated inflation.
USD/JPY ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX economic calendar
The resultant effect from an interest rate cycle perspective has been dovish with money markets reducing the scale of rate hikes in 2024 (refer to table below).
BANK OF JAPAN INTEREST RATE PROBABILITIES
Source: Refinitiv
USD/JPY TECHNICAL ANALYSIS
USD/JPY DAILY CHART
Chart prepared by Warren Venketas, IG
Despite a flat USD, daily USD/JPY price action shows the yen down roughly 0.20% for the day. Bulls attempt to retest the 200-day moving average (blue) as the pair exits the oversold zone of the Relative Strength Index (RSI). I do not expect much in the way of price volatility in this final trading week of 2023 therefore, we are likely to remain in this recent consolidatory phase around the 142.00 psychological handle.
Key resistance levels:
- 148.52
- 147.37
- Channel support
- 145.00
- 200-day MA
Key support levels:
- 141.62
- 140.00
IG CLIENT SENTIMENT: BEARISH
IGCS shows retail traders are currently net SHORT on USD/JPY, with 62% of traders currently holding short positions (as of this writing).
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| Change in | Longs | Shorts | OI |
| Daily | 20% | 6% | 9% |
| Weekly | 44% | -17% | -8% |
Contact and followWarrenon Twitter:@WVenketas
