Last week's massive collapse of the NZDJPY has not yet initiated a new full-scale wave of decline. After reaching a local low of just above 82.5, the New Zealand dollar bounced up against the yen. By this moment, one third of the collapse on December 20-22 has been recovered, and for now the market is ready to continue the recovery of NZDJPY.
Today the yen's decline intensified with the publication of the protocols from the last meeting of the Bank of Japan, which initially caused a sharp strengthening of the Japanese currency. Following the example of Chairman Haruhiko Kuroda, other Japanese regulator officials also rejected to consider the increase in the limit of government bond yields from 0.25% to 0.5% as a step toward a tightening of monetary policy.
In fact, all these statements by officials are not as important now as the real actions by the Bank of Japan. If the step was completely sudden, then we will probably know about future policy changes by the Bank of Japan only after they are approved. And this could become a problem for the Japanese regulator if its words and actions will diverge often.
At the same time, most factors (except for inflation) still make the Japanese authorities inclined to maintain ultra-soft monetary policy. Thus, industrial production data published today recorded a decline for the 3rd month in a row. Together with yesterday's data on decline in retail sales growth, these statistics do not support potential growth of interest rates in Japan, which traders and analysts are talking about more and more lately.
And while Japanese officials are afraid to tighten monetary policy, in New Zealand the key rate may exceed 5% in the first months of 2023, and the rate differential will support the current growth of NZDJPY. The Stochastic indicator also gave a signal for growth and it is far from the overbought zone yet. The closest growth target is the Fibonacci level of 38.2% (84.7) and then the level of 50% (85.3).
The following trading strategy option can be suggested:
Buy NZDJPY not lower than 83.9. Take profit 1 – 84,7. Take profit 2 – 85,3. Stop loss – 83,5.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.