Cautious stance of the Bank of Japan supports USDJPY

The USDJPY currency pair started a new wave of growth this week, rebounding from the support at 150. The return of quotes to the November high at 156.74 may take place by the end of next week, and before that the nearest target of the bulls will remain at 154. Buyers of the dollar against the yen are increasing their activity amid the latest news, and this sentiment may persist until the meetings of the Fed and the Bank of Japan on December 18 and 19, respectively.

Yesterday's inflation statistics for November contributed to the strengthening of the US currency. The annual rate of price growth rose from 2.6% to 2.7%, while the monthly value of 0.3% was the highest since April. This won’t prevent the Fed from lowering its key rate next week, but traders are increasingly doubtful about easing at the January meeting. Traders are pricing in an approximately 80% chance of a pause in rate cuts with the start of 2025.

At the same time, the Bank of Japan seems to have ruled out the December rate hike. This information was shared with Reuters by several sources in the financial markets. Officials of the regulator are waiting for more detailed information about the plans of Japanese companies to increase the salaries of their employees. As a result, the next increase in the cost of borrowing in the country will be postponed until January or even March.

Shusuke Yamada from Bank of America sees the hesitancy of the Bank of Japan as the key factor to further weakening of the yen. According to his estimates, the rate of the Japanese currency against the dollar may fall to 155 and 157. The longer the pause in the monetary tightening cycle, the less faith investors have in the regulator's plans to raise rates. Eiichiro Miura, head of Nissay Asset Management Corp.'s strategic investment, expects borrowing costs to rise in April. This makes the yen vulnerable, pushing USDJPY upwards.

The RSI on the daily USDJPY chart is moving upwards, confirming the buy signal. The next target is the level of 154.

The following trading strategy can be suggested:

Buy USDJPY in the range of 152–152.5. Take profit — 154. Stop loss — 150.