USDJPY consolidates at one-month highs

11 January 2024 107
USDJPY consolidates at one-month highs

The USDJPY currency pair is making another attempt to consolidate above 145. The monthly highs attract some of the bears, but they are still not strong enough to take over the initiative. The majority of currency market participants are set for further regaining of December losses. If the bulls manage to keep most of yesterday's gains, USDJPY may quickly head towards the next upside target at 146.3.


A new wave of yen-weakening against the dollar was triggered by the publication of Japanese wage statistics. In November, nominal wage growth slowed sharply from 1.5% to 0.2%, while in real terms, Japanese incomes accelerated their decline to -3%. Harumi Taguchi, principal economist at S&P Global Market Intelligence, notes the continued lagging of wage growth behind inflation. In her opinion, this situation postpones the moment of an exit from the Bank of Japan’s negative interest rate policy until at least April.


Makoto Sakurai, a former board member of the Japanese regulator, considers April as the most likely date for the start of the monetary tightening cycle. Until March wage negotiations between labor unions and companies, the Bank of Japan will not have enough grounds for decisive action. At the same time, a one-off interest rate hike may not have a big impact on the yen.


Sakurai points out the fundamental differences in the process of monetary tightening between Japan and Western countries. According to him, the Bank of Japan's moves will be much slower and more cautious than those of the Fed and ECB. According to his forecast, the key rate will peak at 0.5%, with the Japanese regulator stretching the process of its increase for 3–4 years. Thus, the rate will be raised no more than 2 times this year, which is clearly not enough to significantly strengthen the yen.


Since the beginning of 2024 USDJPY quotes have already grown by 3%, but the overbought condition on the technical indicators is still not fixed. In this regard, the short-term uptrend has a good chance to continue.


The following trading strategy can be suggested:


Buy USDJPY at the current price. Take profit — 146.3. Stop loss — 144.5.

This content is for informational purposes only and is not intended to be investing advice.

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