Bank of Japan is unlikely to intervene until USDJPY falls below 160

Last week, the USDJPY currency pair reached the highs since July, after which the bears attempted a correction. However, the downward pullback lasted only one trading session, then the price returned above the level of 157. Obviously, the market participants consider the potential for strengthening the dollar against the yen not exhausted, since they are in no hurry to take profits on long positions. In this regard, the upward movement of quotations has all chances to continue up to the range 159–160.

Yesterday's speech by the head of the country's central bank contributed to the weakening of the Japanese currency. Kazuo Ueda disappointed yen buyers by refusing to confirm his intention to raise the key rate at the January meeting. Masato Koike, senior economist at Sompo Institute Plus, notes the stronger probability of the Bank of Japan tightening monetary policy in March, rather than next month.

According to a Bloomberg survey, 86% of respondents believe that a further increase of borrowing costs in Japan is justified. Inflation has been above the regulator's target level for more than 2 years, but officials remain cautious. Naoki Tamura was the only member of the Bank of Japan's monetary policy board to vote for a rate hike at the Dec. 19 meeting. The detailed minutes of this meeting will be released tomorrow, and investors will get more information from them.

Takeshi Ishida, currency strategist at Kansai Mirai Bank, sees the potential for USDJPY to rise to the level of 160. According to him, the Bank of Japan will conduct currency interventions to strengthen the yen not earlier than this mark. Other analysts call the July maximum of 161.95 or even the level of 165 as a critical boundary. According to these estimates, the Japanese bank now makes no sense to intervene in trading on the currency market, as the dollar in any case will retain its strength at least until the inauguration of Donald Trump on January 20.

A more reliable strategy is to buy USDJPY with profit taking before 160. For example, the range 159–160 is suitable for this.

Consider the following trading strategy:

Buy USDJPY at the current price. Take profit – 159. Stop loss – 156.