USDJPY Soaring On Dovish BOJ Hike
Yen Collapsing Again
USDJPY is surging higher today as traders digest the latest rate decision meeting from the Bank of Japan overnight. The BOJ hiked rates by a further .25%, as expected, with its headline interest rate now back up to 1.25%. However, two dissenting votes against the hike, as well as the slightly softer national CPI print which released just ahead of the meeting means that traders are viewing hawkish risks as having decreased. Additionally, the meeting statement offered little in the way of hawkish guidance and, ultimately, JPY bulls were left disappointed by a fairly lacklustre event. With JPY now crashing back towards the summer lows it seems like a missed opportunity for the BOJ to capitalise on the prior rally we saw in JPY.
Fed/BOJ Divergence
The BOJ’s lack of hawkish signalling stands at odds with the messaging we heard from the Fed earlier in the week. Warsh and co clearly signalled that another hike by year end was likely with 12 of the 18 policy makers now forecasting a further hike in the updated dot plot forecasts and four members projecting two hikes. As such there is strong, bullish divergence between the Fed and BOJ, now reflected in the rally we’re seeing in USDJPY which looks set to continue while this narrative remains. Indeed, any further strength in US data and/or weakness in Japanese data should feed into a continued recovery higher for the pair.
Technical Views
USDJPY
The more than 3% rally off the September lows has seen price trading back up to test the 157.85 level. This is a key marker and a break back above here will put focus on a return to the 160-level next. Medium term, the bullish outlook remains while price holds above the 154.65 base area.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.