Selling USDJPY ahead of Bank of Japan meeting

22 January 2024 95
Selling USDJPY ahead of Bank of Japan meeting

Tomorrow will be the first Bank of Japan meeting this year, which may shed some light on the outlook for monetary policy.


Market participants are keeping a close eye on annual wage talks as they could be an incentive for the Bank of Japan to end negative rates. At the same time, the majority of observers forecast that the central bank will wait until April before raising rates for the first time since 2007.


According to Eiji Maeda, a former BOJ executive director in charge of monetary policy, the central bank is likely to be encouraged by a stronger outcome of annual wage negotiations.

There is a strong possibility that the outcome of spring wage talks will be higher than last year and will reach 4%, said Eiji Maeda in an interview. The reason is that the positive price mechanism the central bank has been trying to confirm is already in operation, he added.

Maeda refrained from indicating a particular month as the potential timing for the first rate hike by the Bank of Japan, instead generalizing that it would take place by spring. However, he pointed to the likelihood of making the decision in April without ruling out earlier action.


Maeda expects this year's negotiations to result in a promise to raise wages at a pace that exceeds last year's 3.58% amid record corporate profits and a tighter labor market. If wages rise by 4%, as Maeda predicts, it would be the sharpest increase since 1992. Initial results from Rengo are due on March 15, just before the BOJ meeting.


Despite the fact that March is still quite far, some technical signals are already indicating a possible weakening of the USDJPY pair.

In terms of technical analysis of the USDJPY currency pair, there is an untested top at 146.400, and the market is likely to return to it in the near future.

 

The overall recommendation is to sell USDJPY.

Profit should be taken at the level of 146.400. A Stop-loss could be set at the level of 149.500.


 

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

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