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Jan 20 - 11:55 AM

USD/JPY - COMMENT-BoJ And Fed Policy Traction Puts USD/JPY Downtrend To Test

By Randolph Donney  —  Jan 20 - 09:55 AM

USD/JPY surged back toward Wednesday's 131.58 post-Bank of Japan meeting high on Friday, with JGB yields falling further as shorts were squeezed by the BoJ reaffirming ultra-loose policies and JGB ownership nL1N3450Z6 and USD/JPY shorts premised on key support at 126.56 being broken covered.

Prices are nearing the oft pivotal 21- and 30-day moving averages at 131.23/132.42 on EBS, as well as the 55-WMA and daily Kijun at 132.41/51.
A close above the Kijun would raise the risk of a broader rebound, but is likely seen initially as a fade spot.

Adding to USD/JPY's rebound are Treasury yields recovering from Wednesday's downtrodden U.S. data-driven lows, aided by Thursday's lower U.S. jobless claims and Federal Reserve vice chair Lael Brainard and NY Fed President John Williams saying they must "stay the course" in fighting inflation.

Markets continue to price in late 2023 rate reductions by the Fed after further hikes beforehand, but yen-bullish BoJ policy normalization trades may need upcoming wage agreements to rise enough to give Governor Haruhiko Kuroda's replacement the policy shift green light.
This despite core-core CPI at 1.5% nL4N34426S and inflation driven primarily by high import prices nL4N34426S that last year's JPY collapse exacerbated, but which the yen's recent recovery and base effects should help reduce this year.

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Source:
Refinitiv IFR Research/Market Commentary

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