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Key news events for the weekIt might be a big week head for the markets. Monday CHF CPI data release. The inflation gauge for the Swiss is expected to be lower than previous, signaling a slowdown in inflation growth. Could result in some weakness in the CHF if markets anticipate no more rate hikes to come from the SNB. Tuesday Reserve Bank of Australia (RBA) interest rate decision. Another 25bps rate hike to come? However, the AUDUSD has often traded lower following the release of the news. Could the same thing happen again? Fed Chair Powell testifies during the US session. This could lead to increased volatility on the DXY, but watch what Powell says! Pivot? Or continue with the rate increases? Wednesday Bank of Canada (BoC) is set to hold rates at 4.50%. Unlikely that we'll see a surprise given how recent Canadian CPI has been released lower than previous (signaling a possible reversal in inflation). Friday Bank of Japan (BoJ) is set to announce its monetary policy decision. This is Kuroda's last monetary policy meeting as Governor. While a surprise is unlikely, he might lay the foundations for his predecessor. Expect significant volatility on the Japanese Yen. Since it is the first Friday of the month, look out for the release of the US Non-Farm Employment Change (NFP). The data shouldn't surprise like the previous month, however, some stability in the employment data could see markets reconsider the FOMC's stance on further rate hikes, leading the DXY to trade lower. Whatever the news, watch out for my daily posts on the specific currency pairs as I update you on possible setups and price levels. Also, tune in to the Daily Live Stream at 3pm (GMT+8)!
TVC:DXY
by JinDao_Tai
4
USDJPY Outlook 3rd March 2023Overnight, the USDJPY climbed steadily to the upside, reaching the recent high and round number resistance level of 137. However, the price failed to break the resistance level, retracing lower down to the current level of 136.61. While further upside could be expected especially if the DXY continues to strengthen, watch out for significant volatility on the Japanese Yen with the recent news that the Japanese bond yields have again risen above the 0.5% ceiling previously set by the BoJ. On 20th December 2022, when the BoJ increased flexibility by increasing the bond yield ceiling, the USDJPY spiked from the 137.17 level down to 133.50 within the hour. In the meantime, look for the USDJPY to consolidate along the current price level (supported by the 23.6% Fibonacci retracement level) before trading higher again with the 138 key resistance level a target level.
Long
by JinDao_Tai
4
USD/JPY dips as Tokyo Core CPI slowsThe Japanese yen has gained ground on Friday. In the European session, USD/JPY is trading at 136.17, down 0.44%. There was some positive news on the inflation front, as Tokyo Core CPI for February slowed for the first time since January 2022. The indicator was expected to rise from 4.3% to 4.5%, but instead reversed directions and fell to 3.3%. The sharp drop was not a complete surprise, as it was driven by government subsidies, including a 20% reduction in household electricity bills, which took effect in February. Without the subsidies, it's likely that the Tokyo inflation figure would have come in around 4.5%. It's unclear how long the government will continue these subsidies, which means that the inflation picture remains uncertain. The Bank of Japan has insisted that rising inflation is transient and is a result of external factors such as high commodity prices rather than domestic inflationary pressures. The central bank has insisted on maintaining its massive stimulus programme even though inflation has been on the upswing and is more than double the BoJ's target of 2%. All eyes are on the Bank of Japan, as the changing of the guard looms ever closer. BoJ Governor-elect Kazuo Ueda will take over the helm from Haruhiko Kuroda in early April. Ueda has been careful not to make any waves at his confirmation hearings, saying that the central bank's current policy is appropriate. Still, the markets aren't convinced that Ueda will maintain Kuroda's ultra-loose policy, especially with rising inflation. The BoJ's yield curve control (YCC) policy has damaged the bond markets and there is speculation that Kuroda could make a grand exit at his final meeting on March 10 and tweak YCC in order to relieve pressure on Ueda. There is resistance at 137.37 and 138.24 135.65 and 134.78 are providing support
by OANDA
Looking for a bullish breakout from USD/JPY's consolidationA bullish engulfing candle formed on Friday thanks to a hot US inflation report. The fact that incoming BOJ governor Ueda delivered a dovish message at his confirmation hearing simply adds to our bullish conviction on USD/JPY. Prices are now consolidating on the 1-hour timeframe, so we'd welcome any pullback towards the weekly pivot point to consider long setups, with the next bullish target sitting around the weekly R1 pivot (137.30). The OBV remains elevated to suggest the rally has been supported by bullish volume, so we're also on guard for a bullish breakout from the current consolidation.
Long
by CityIndex
USDJPY: Increase expected but watch end of week JPY FundamentalsAs we see the DXY continue to push up thanks to the fundamentals and potent9ial for a 0.5% rate hike, I'm expecting this pair to continue to push up. Key fundamentals out of Japan this week with inflation data on Thursday, there's also a speech on Friday by incoming Governor Ueda, not expecting policy comment, but if we get some it will likely have an impact on USD and JPY pairs. Depending on the DXY this week, and some weakness I'm expecting to continue for JPY based on JPYWCU, I'd expect we may reach the 137.5 region / where the 50MA and 100MA look about to cross, and then a drop / retracement. We saw a bearish pinbar on the daily on Friday, which does suggest a drop first, however I think this could be misleading due to the USD sell-off on Friday ahead of the long weekend. I'll be getting in with a bullish indicator on a LTF, and then out around 137 or end of day Thursday (ahead of the JPY CPI), whichever comes first. Whatever I expect volatility at the end of the week for this pair, it could drop very quickly with the fundamentals so I'll trade carefully and book profits!
Long
by Finchcliffe
1
$USDJPY: Dollar reversal?I suspect we are seeing a large scale reversal in the dollar, which will be further confirmed if CPI favors renewed hawkishness surpassing current consensus estimates (consensus was already shaken by NFP yesterday, and would be further shocked if CPI allows Powell to keep hiking for longer than expected, or even do larger hikes as well). The BOJ governor change is looming as well, and with it the retirement of YCC apparently (yield curve controls). Overall, a decent trade if you need to hedge some equity risk in your portfolio or if you are an avid Forex trader already. Best of luck! Cheers, Ivan Labrie.
Long
by IvanLabrie
2
Yen edges lower after BoJ's Ueda testimonyThe Japanese yen is slightly weaker on Friday. In the European session, USD/JPY is trading just above the 135 line. Incoming Bank of Japan Governor Kazuo Ueda appeared at a parliamentary hearing on Friday and the markets were all ears. The buzz-word from Ueda was 'continuity', which really wasn't a surprise. Ueda has already said that the current policy is appropriate and he maintained this stance at the hearing. Ueda said that ultra-low rates are needed while the economy is fragile and ruled out fighting inflation by tightening policy. With inflation running at 4%, above the BoJ's target of 2%, there is pressure on Ueda to abandon or at least adjust the Bank's yield control policy (YCC), which is being criticised for distorting market functions. Ueda treated this hot potato with caution. He acknowledged that the YCC had caused side effects but said that the BoJ should evaluate whether recent steps such as widening the band around the yield target would ease these problems. The takeaway from Ueda's testimony is that he is in no hurry to shift central bank policy. Still, there is strong pressure on Ueda to address YCC, which is damaging the bond markets. Investors should not discount the possibility that Governor Kuroda could widen the target yield band at the March meeting in order to relieve pressure on Ueda. If Kuroda doesn't act, the bond markets could respond with massive selling before Ueda takes the helm of the BoJ in April. The inflation pressures facing the BOJ were underscored by National Core CPI for January, which rose from 4.0% to 4.2%. This was just shy of the 4.3% estimate, but still the highest reading since 1981. The BoJ has insisted that inflation is temporary (remember that line from the ECB and the Fed?), and is hoping that the government's massive stimulus package, which includes subsidies for electricity, will help bring down inflation. USD/JPY is testing resistance at 134.85. Above, there is resistance at 135.75 1.3350 and 131.90 are providing support
by OANDA
GBPJPY: This pair poised for a drop / BoJ Governor voteWe've seen recent strength from JPY in preparation for the announcement of a new Governor, with nominations expected in the next few days. The currency rose this past week when it was 'leaked' that Kazuo Ueda could become the next Governor, and this could lead to a change in monetary policy. Anyone following me will note I'm weak on GBP and generally bullish on JPY in my ideas - I don't think BoE have room for hikes that can compete with other majors, BoJ do (and they seem to have managed their economy incredibly well post-pandemic). BoJ certainly has room for manoeuvre, and I'm expecting strength from the yen this year. With inflation levels higher than target, interest rates low and potentially a new Governor that is no stranger to voting for monetary tightening when needed, the landscape is there for shorting the GBPJPY. I think this pair is due a big drop, we may see the rise up to 164 to form a rising wedge, but my expectation is a fall before it reaches that point, and a big one at that.
Short
by Finchcliffe
Looking ahead into February 2023 (Yen)Not very long ago, we saw the Yen weaken to historic lows, with the USDJPY climbing to an all-time high of 152. But that was in Oct last year! Since then, the USDJPY is in a strong downward trend. In January, the upside on the USDJPY was capped at the 134.50 price level, with the price generally trading lower, to the key support level of 127.60. The move lower was primarily driven by the weakness of the DXY but volatility was also increased due to 2 key news events from the Bank of Japan (BoJ). 1) On the 12th of January (one week before the BoJ meeting), there was news that the BoJ will review the side effects of its current monetary policy. The BoJ is the only major central bank still adopting an easing monetary policy (negative interest rates, quantitative easing). Therefore, the idea of a review of the monetary policy spurred markets into anticipating the introduction of tightening policies. Because of this, the USDJPY broke strongly below the 131 price level to trade down to 127.60. 2) Price consolidated between 128 and 129 in the lead-up to the BoJ meeting on the 18th of January. The BoJ monetary policy was released with no changes and no mention of a review of the current monetary policy. A major upset to what the market had anticipated. This resulted in the USDJPY immediately spiking strongly to the upside to retest the 131.30 price level. However, the resistance level held strong, with the price retracing back down to the 127.60 price level again. (The USDJPY continues to trade within the range) Where could the Yen head to in February? The good news is, there is no BoJ meeting for the month. This means that it is unlikely that the current monetary policy is less likely to be changed (for now). However, do not rule out the possibility of surprise news releases (like when the BoJ surprised markets by widening the yield target band on the 20th Dec 2022). This also implies that the volatility and next directional bias of the Yen could be dependent on the base pair that it is traded against. Expecting a recovery in strength of the DXY in February, the USDJPY could break out of the current consolidation to climb beyond the 131-round resistance level. However, the anticipation of a review by the BoJ is likely to continue to weigh on the Yen, limiting the potential for significant upside moves. Beyond the 127.60 support level, the next key support level is at the 126 price area. The immediate resistance level is at 131.30 and the next key resistance level above that is 134.50.
by JinDao_Tai
3
SHORT the Land of the Rising BanksSince the Bank of Japan shocked global markets in December ‘22 by widening the Yield Curve Control trading band on 10Y JGB yields from 0.25% → 0.5%, TOPIX Banks have been on a one-way surge upward. TSE:T17B index rallied +7% on the day of the policy meeting, and +25% within days thereafter. The three Japanese mega banks Mitsubishi UFG (TSE:8306, NYSE:MUFG), Sumitomo Mitsui Financial Group (TSE:8316, NYSE:8316), and Mizuho Financial Group (TSE:8411, NYSE:MFG) are hitting half-decade highs - but this is nonetheless a broad-based and nearly indiscriminate rally within the overall sector, as smaller regional banks participate in the upside. The fundamental reason for the rally is simply due to the Bank of Japan steepening the previously (and still) pancake-flat yield curve by lifting the ceiling on 10Y yields, while leaving their front-end policy rate at -0.1%. A steeper JGB yield curve “means” more favorable Net Interest Margins (NIM) for these lenders. There have been all sorts of analyst estimates and calculations of just how much of a positive boost to earnings this will be - and perhaps this will indeed come to fruition. However, the long end of the JGB curve suddenly and sharply rising can be a double-edged samurai sword- while banks may benefit from higher NIM, they are also taking massive unrealized marked-to-market losses on those very JGB holdings. Meanwhile, the Bank of Japan has kept firm on YCC at their latest January policy meeting. Furthermore, they have been targeting much of their JGB buying (ex the 10Y) at the 2Y ~ 5Y tenors, and JGB 2Y and 5Y yields have been cut in half from recent peaks as a result. TOPIX Banks index, especially Mizuho shares, have been closely correlated to the 5Y JGB yield - particularly since the December 2022 BOJ surprise rally. Yet, while these banks shares’ rallies have paused, they have not followed 5Y JGB yields downward. The BOJ has (for now) put a halt on an ever-rising / steepening JGB curve- giving banks +25bps (and falling as of this writing) “extra” on the long end for their NIM spread. Also with BOJ policy, there is still a negative policy rate imposed upon these banks. Earnings for these banks are coming up next week, starting at the beginning of February. There is a LOT of assumed lofty upside of NIM currently priced into these shares. If they don’t at least MEET these expectations (and according to Bloomberg articles, it seems the executives of the big three are less excited than markets are of earnings upside), swift profit taking can ensue. If they not only fail to meet lofty expectations, but instead report major unrealized losses on their JGB holdings (after taking huge losses on their foreign bond holdings throughout 2022), swift profit taking can ensue. If swift profit taking ensues, (other/additional) swift profit taking can ensue. Japan - “land of the rising yields” is now in reversal - with a major dislocation in the otherwise historically lockstep bank shares vs JGB yields. A fundamental reality check from earnings may be what it takes to whack shares back into place. Note - this is obviously not trading advice - and as I always repeat in my videos: If you listen to me, you will lose all your money. If you use me as a reverse indicator, you will still somehow lose all your money. And the reason is very simple: I am a very stupid person, and these are very stupid thoughts. Clear? So, with that said, here’s what I have been doing (and again, if you wish to apply any of it, please do so if you hate money). I had been long MUFG since Dec BOJ Meeting to ride the momentum, and closed out my long on Mon Jan 16th (day before Jan BOJ) for a +21% return in something like 15 trading days - and closed out the trade on the thesis of “no change for Jan BOJ meeting” - which then came to fruition, and MUFG fell -5% thereafter. I am using my gains (“house money”) and am now long puts on these banks with post earnings expiry. Of the three mega banks, I hate Mizuho Financial Group (TSE:8411, NYSE:MFG) the most. And I am FAR from any sort of financial analyst - I am basing this on the JGB 5Y correlation, as well as Mizuho ATM machines having eaten my ATM card TWICE ← prob little to do with stock price action.
TSE:T17BShort
by acrossthespread
USDJPY Lodged around Confluence holds key to future directionUSDJPY has been on a bearish trend in the last 2 months following the BoJ’s policy intervention sometime in November. In recent weeks, the central bank held its monetary policy meeting and still left its policy approach unchanged, leaving the yen again exposed to market forces to determine its direction. A technical view on the pair shows price is subdued by a descending trendline which aligns with a resistance around 131.550. It is important for traders to observe the price action around this zone before scaling into the market. Our possible market scenarios are Bullish Scenario: A convincing break away from the confluence around 131.550 will expose 134.65 peak with sights of the major resistance at 138.100. Bearish Scenario: Our current view shows the market trend has switched to bearish and is respectfully playing along with price swings. Current price action shows price is struggling at the confluence (131.550) and we are beginning to see some bearish candlestick patterns congest the area. Traders can look out for confirmations around this zone to ride along with the current trend. Intraday Price levels: Resistance: 131.550 Support: 127.300 Chart pattern: Wedge pattern identified on a 4hour time frame
by ScopeMarkets
ridethepig | JPY for the Yearly Close📌 @ridethepig G10 FX Market Commentary - JPY for the Yearly Close Of course, the breakout here can be bought after so much consolidation but it takes time. Buyers have no worries, since with a solid centre a loose Japanese fiscal and monetary policy is easy enough to map. Even more than that Kuroda and Suga are well seasoned, the logical link here is for USDJPY lower as a safe-haven flow but my models are picking up on it dislocated from the rest of the board on a capital flow basis. We managed to clear the 2020 targets very early and it will be a pleasure to review: ...we have to be interested in how the crowd can be wrong and how they are being led into the wilderness. Japan understood clearly the issue from the centre, unlike the West which have attempted to use monetary policy to cure private debt problems with issuing more private debt. They have breathed this mantra since 1991, in this sense and others they are miles ahead of the West and had a few decades to get to work on it with fiscal policy. We will go into the macro details in the coming days after the round of G10, EM, Commodities, Equities and Yields maps are updated. Then we can open the discussions for all to join in with the macro charts before we go into the short-term possibilities and build the shop for 2021 and beyond. Thanks as usual for keeping the feedback coming 👍 or 👎
Long
by ridethepig
14
SWING TRADING: LONG USDJPY. TARGET 131.650TRADE TYPE: INSTANT ENTRY TRADE DIRECTION:LONG TIMEFRAME: 4H ENTRY PRICE: 129.000 STOP LOSS: 127.670 TAKE PROFIT: 131.650 RISK TO REWARD: >1:1 ANALYSIS: Price broke the supply zone comfortably and now shall look to aim towards the upcoming supply zone . stop loss ideally placed below swing low. Follow this thread for any future updates regarding this specific trade. CAUTION: Trading is a Probability Game and could wipe out your account if risk management and strategy is not followed properly. Cheers
Long
by FX618Analysis
Joe Gun2Head Trade - GBPJPY to reverse overnight gains?Trade Idea: Selling GBPJPY Reasoning: GBPJPY rallied to a 78.6% Fibonacci level and the 20Day Volume point of control. Entry Level: 160.01 Take Profit Level: 156.78 Stop Loss: 156.78 Risk/Reward: 2.5:1 Disclaimer – Signal Centre. Please be reminded – you alone are responsible for your trading – both gains and losses. There is a very high degree of risk involved in trading. The technical analysis , like all indicators, strategies, columns, articles and other features accessible on/though this site is for informational purposes only and should not be construed as investment advice by you. Your use of the technical analysis , as would also your use of all mentioned indicators, strategies, columns, articles and all other features, is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness (including suitability) of the information. You should assess the risk of any trade with your financial adviser and make your own independent decision(s) regarding any tradable products which may be the subject matter of the technical analysis or any of the said indicators, strategies, columns, articles and all other features.
Short
by Signal_Centre
end of the carry trade The chart below shows when we started to switch sides in yen at 149.3x on October 18th. Three days later, we had FED 'slip of the tongue' admitting being passed the mid-point in rate cycle, and finally the dollar began to cool. BOJ have no option but to move rates higher. The clock is ticking for a move under $125, unlocking $110 and $100 with the full swing. For those following the flows over the past few years this has been a flawless carry trade, presented in a 5-3-5 corrective sequence (since multiple decades), and finally beginning to unwind. In terms of sequencing, Kuroda is out in April, leaving behind inflation on the doorstep and probably the end of YCC. Yen longs continue to make a lot of sense over 2023, near term watch out for some profit taking at $125. Keep short, add on better levels, $132 will cap the highs.
Short
by ridethepig
10
BoJ watch - a traders' guide to JPY moves on the day As detailed in the BoJ meeting preview yesterday, the market is on edge for significant movement – case in point, USDJPY 1-day implied volatility (vol) currently sits at 49% - for context, this equates to a 279-pip move (higher or lower) on the day (with a 68% level of confidence), where the market feels fairly confident the upside should be contained into 131.00. You can see the implied volatility (vol) matrix, which uses 1-day option implied volatility, and we assess the expected move derived from this vol – essentially, it replicates the straddle breakeven move, which is what options traders use as a quantitative guide for movement, which they can then buy and sell vol accordingly. As a spot FX trader, I can use this to understand expected movement over a set period, which can dictate the market regime I trade in intraday – it also helps guide my position size and whether I even hold positions at all over news. When we see vols so incredibly high, it would be a surprise if this meeting proved to be a non-event, which is a debate I’ve been having with clients – the question for me is what scenario is 1) most likely 2) what is the ‘pain trade’? I list the expected policy measures below which have been widely touted as the most likely responses to be seen today. My own view is the BoJ YCC (yield curve control) program is on borrowed time – there is rising political pressure against it, the market is forcing the BoJ to buy unsustainable levels of bonds daily and Japan has a rising inflation problem that is seeing the fair value of JGB’s yield rise. My own view is the most likely action is that we see no. 1 enacted, with the YCC band rising to 1%, subsequently giving them more time to fully abolish YCC in the months ahead. However, I acknowledge the chance of no. 5 or 6 is also high. The big moves in the JPY, JPN225 and JGBs come if we see no.4 or 6, with no. 5 also offering big potential movement. The pain trade is likely seen in no.6 (no change at all) – given expectations, positioning (the market is heavily short JGBs and long JPY), and options traders short delta exposure – if that plays out the JPY could get smoked. Recall, the main policy shifts we could see are: 1. To widen the current 10-year JGB cap again, to 0.75% or 1% from 0.5% 2. To shift the target JGB yield from the 10-year JGB to the 5-year JGB. 3. To raise the 10-year yield target to 0.1% from 0% currently 4. To terminate and close off the YCC program completely 5. To terminate the YCC adding a temporary QQE program and a commitment to provide two-way liquidity 6. To leave the policy unchanged So, for those involved today keep your eyes peeled for headlines from 12 pm – it could get a little crazy. After pegging the JGB market for seven years, we typically get vol when we move away from a well-trodden regime.
by Pepperstone
Implied volatility screams higher ahead of the BOJ meetingOvernight implied volatility has risen sharply higher for yen pairs ahead of tomorrow’s Bank of Japan (BOJ) meeting. In fact, they now sit at their highest level since Brexit, which saw some yen pairs produce double-digit percentages moves (to the favour of the yen) following the infamous vote. Why are traders on edge ahead of tomorrow’s BOJ meeting? The BOJ surprised market in January by doubling their target band of the 10-year JGB from +/- 0.25% to +/- 0.5% ‘around’ zero. Given they had denied for months they would exactly that, it quickly led to speculation that the BOJ are now veering away from ultra-loose monetary policy, and this was just an important first step. But things are never straight forward with the BOJ as there are several moving parts for their policy, so we’ll take a look at some potential scenarios. The BOJ could abandon YCC (yield curve control) There is a growing expectation for the BOJ to either widen the band (to 0.75% or 1%) or scrap it all together. On one hand this is plausible as Kuroda finishes his 10-year term in April, and he may want to provide a smooth transition to his successor. But the BOJ have already proven they don’t need a meeting to announce such a move, as we saw on the 3rd of January. And do they need to widen it so aggressively twice in the same month? Personally I suspect the BOJ are unlikely to widen their YCC further, given the increased levels of volatility it has caused for Japan’s bond markets over the past few weeks. Furthermore, this seems to have quickly become a consensus view – and the BOJ don’t have a great record of playing along with the consensus. And this leaves the yen to a broad sell-off (stronger USD/JPY) if they keep YCC in place. Could the BOJ raise interest rates? I suspect this to be a very low probability event, but take nothing for granted with the BOJ. Also, it is the low probability event which spark the largest reactions, and a surprise hike to zero or higher is likely to send USD/JPY lower, along with the Nikkei 225. But as the year progresses there’s a much greater chance that the BOJ will revert to ZIRP (zero interest rate policy), and if inflation remains elevated they could even raise rates to 0.1% or 0.2% further down the track. Perhaps a form of QT (quantitative tightening)? Assuming the BOJ intend to scrap YCC before Kuroda exits (but it is not announced tomorrow), a potential first step would be to limit the amount of JGB purchases in the January meeting before wrapping it up at their March meeting. The BOJ could switch to an inflation target ‘range’ Not many are discussing this that scenario, which is partly why I like it. I don’t think the BOJ will scrap their inflation target all together, but they might announce a target range of 2-3%. We know that the PM has been calling for more flexibility with the inflation target, and this seems like a plausible compromise from the BOJ. Yet this is a scenario to plan for as it gives the BOJ greater wriggle room with their policy – so may provoke a less directional response from markets. Overnight Implied Volatility levels for USD/JPY At the time of writing, overnight implied volatility has risen to ~340 pips above or below 128.95, which provides a range of 125.14 to 131.84. 1-week IV is a whopping 900 pips and the 1-month has blown out to 1874. So traders are clearly taking this meeting very seriously. It is worth noting that implied volatility is not a precise target and essentially tells us options traders estimate with ~68 probability of prices closing within the implied range. Furthermore, I have noticed a tendency for markets not to reach the suggested upper or lower bounds of the range when IV explodes like it has today. This could be because markets are now fully prepared for a large event and much of the shock factor has been priced in. Implied volatility was low ahead of the BOJ’s surprise announcement on the 4th of Jan, but much higher after the event (and the same can be said for Brexit). With that said, it is likely to be a volatile event regardless even if not as volatile as the IV’s currently suggest. Either way, risk must be managed accordingly – even if it means not trading the actual event. USD/JPY 4-hour chart Prices have retraced against the bearish trend on the 4-hour chart. If prices continue to drift higher I doubt it will have the legs to reach the 130 resistance zone ahead of the meeting, but we may see further bearish interest as we get close to the meeting with expectations for a hawkish meeting remaining high. • With several upper wick forming on the 4-hour chart then bears could consider fading into minor rallies into the highs with a loose stop, to anticipate a move lower ahead of the meeting. • Trading around the actual announcement may prove futile given the potential for volatility and the spread blowing out. • But once the dust has settled and traders get a clearer picture of what the BOJ have done (or not), it would be a cause of deciding if the meeting was hawkish (USD/JPY bearish) or dovish (USD/JPY bullish) relative to high expectations of the former.
by CityIndex
USD/JPY ends nasty slideUSD/JPY is in positive territory on Monday. In the North American session, USD/JPY is trading at 128.50, up 0.52%. The yen had an excellent week, climbing over 3% and trading at levels not seen since May 2022. The Bank of Japan holds a two-day policy meeting on Tuesday and Wednesday in what could be one of the highlights of the week. BOJ meetings were traditionally sleepy affairs that usually maintained the Bank's policy settings. That has changed and the December meeting roiled the markets after the BoJ unexpectedly widened the band around 10-year JBs to 0.50%, up from 0.25%. The dramatic move has raised speculation that the BOJ could be planning additional policy changes at the upcoming meeting. The 0.25% cap on 10-year yields was breached on Friday and again today. The central bank has responded by buying over 2 trillion yen worth of JGBs but there is talk that the Bank could further widen the band to 0.75% or even abandon its yield curve control (YCC) policy completely. The yen has gained 14% against the US dollar since November, adding pressure on the BoJ to tighten its ultra-loose policy. If the BOJ does scrap the YCC, it would likely be viewed by the market as similar to a rate hike, which would push the yen higher. The BOJ will also release an updated inflation forecast, which is expected to be revised upwards. Market participants should be prepared for volatility from the yen after the BOJ announcements on Wednesday. In the US, consumer confidence gained strength in December. UoM Consumer Sentiment jumped to 64.6, beating the forecast of 60.5 and above the November reading of 59.7. Inflation expectations for 2023 decreased to 4.0%, down from 4.4%, although long-term expectations inched higher. USD/JPY is testing resistance at 128.40. Above, there is resistance at 129.40 127.07 and 125.92 are providing support
by OANDA
The BoJ meeting playbook - navigating big moves in the JPYIt’s been many years since Bank of Japan (BoJ) meetings posed significant risks for traders, but this Wednesday’s BoJ meeting holds the potential for significant volatility in USDJPY, as well as the JPY crosses, and JPN225. The risk manager The job of the trader is to manage risk, as well as achieving correct position sizing for every trade. So, when I look at the explosion in USDJPY 1-week (options) implied volatility – essentially the markets' expectation of movement in USDJPY through the week – we see this at 23%, and the highest levels since March 2020. For context, this equates to expectations of around 350 pips, or a near 3% move this week in USDJPY (higher or lower). Much of this move could be realised on the day from headlines from the BoJ meeting and what the market hears relative to positioning and expectations. When we see such high expectations of movement, the question traders need to ask is whether they should reduce or even exit exposures before the event. In some cases when there is a strong skew in the potential outcomes and a high enough conviction, whether to even take a position over the event – in special situations these events can offer high/risk reward outcomes. We assess that here. Key times to be aware of – Headlines and the outcome from the meeting will come out on Wednesday, likely in the Asia session afternoon. Unlike most data points there is no set time, but we should hear the outcome between 13:00 and 15:00 AEDT. What is expected from the BoJ? Last week we saw an article in the Japanese publication Yomiuri Shimbun that the BoJ was reviewing the negative effects of its current monetary policy regime – despite only changing its policy setting on 20 December, where they lifted the ceiling (or cap) by which the 10yr JGB yield (Japanese govt bond) can trade to 0.50%, the market swiftly took this to mean another key change was incoming. The fact the BoJ had to ramp up its daily bond buying to a record amount to defend the 0.50% cap, suggests their policy setting is still highly dysfunctional, and with inflation pushing 4% its current yield curve control (YCC) program is on borrowed time. While we can look at the possible outcomes, and assign a probability and potential market reaction, I think in all cases the BoJ will try its utmost to say the action is designed to address an increasingly dysfunctional market and should not be seen as a tightening of policy. The market will likely look through this and ignore their pleas. Given 10yr JGBs currently trade above 0.5% (or 50bp), 10yr swap rates trade above 90bp and the JPY has had a one-way move of late, one assumes the market is skewed and part positioned to an outcome that the BoJ abolish its YCC program. This plays into my back-of-the-envelope playbook. Possible actions: • The BoJ again widens the yield band to -/+0.75% while continuing to buy incredible amounts of JGBs in its daily operations to support the 0.75% yield cap - an action that doesn’t make a huge amount of sense as it would not resolve the dysfunctional market and would need to be altered again – likely promotes a 2%+ rally on the day in USDJPY • The BoJ widens the yield band out to -/+1% while continuing to buy JGBs to support the cap – tactically this makes more sense, but an action that could cause a 1%+ rally in USDJPY • The BoJ leave policy unchanged but signals a change is coming – this would surprise and cause a 2.5%+ rally on the day in USDJPY • Completely terminates its YCC program – the market is leaning this way but would still likely cause a 3%+ sell-off on the day in USDJPY • Shifts the YCC target which is currently capping 10yr JGBs at 0.50% and move to target the 5yr JGB instead – it's hard to create a clear framework on this policy change, but an action that likely leads to the most subdued reaction seen in USDJPY For those new to BoJ policy and bond markets this event risk does require some research. As always, moves in markets come from current market positioning, expectations, and the actual outcome. For me, simplistically, given expectations are now elevated for an end to YCC and its yield cap – hence, a lack of action would be a big surprise and cause a significant move higher in USDJPY. If the BoJ decides to remove its YCC cap, then despite positioning I think there is further to go, and it could have huge implications for the JPY and see USDJPY smashed as traders front-run the idea of massive capital repatriation from Japanese pension funds eyeing more compelling returns in their domestic bond markets. The BoJ meeting holds the potential for bug moves not just in the JPY and JPN225 but could influence the USD across other G10 pairs too – be aware of the event and manage the risks accordingly.
by Pepperstone
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