Selling USDJPY as BOJ rate hike bets intensify

A split within the Bank of Japan's (BOJ) Monetary Policy Board has intensified pressure on Governor Kazuo Ueda to speed up interest rate hikes, with the next tightening possibly coming in October. During its early September meeting, the regulator kept borrowing costs at 0.5%, as expected. However, two board members' call for a quarter-percentage-point rise caught markets off guard and was perceived as a sign that the central bank is less worried about economic challenges than previously thought.

The intention behind this move is still unclear, as it could be a premeditated signal to markets that a rate hike is imminent. Still, it does demonstrate the board's strengthening conviction that conditions for another increase are falling into place. Since July, rising price pressures have been a source of concern for the regulator. Some members believe food inflation will ease. Others warn that continued cost hikes for essential goods could lead to more widespread and long-lasting price surges.

Even as a consensus emerges that future monetary tightening will occur at one of the three meetings next January, BOJ officials maintain a guarded stance regarding their pace and timing. Investors are now seeing about a 50% chance of a rate hike in October. According to a Reuters poll, most economists anticipate an additional 25-basis-point increase by year-end, though there is little confidence in the timing, with opinions divided between October and January.

This week's reports have furnished substantial backing for the Japanese currency, setting the stage for a further decline in the USDJPY pair. From a technical perspective, a reversal pattern has been developing on the daily chart for some time. This pattern is characterized by a series of peaks at different price points, with subsequent attempts to breach its bottom at 140.00. A successful break below this level is likely to trigger a fall in USDJPY toward 133.00. 

The ultimate recommendation is to sell USDJPY from 140.00. Profits are taken at 133.00. Stop loss is placed at 147.50.

The volume of your open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.