USDJPY is preparing to retest the monthly low of 153.7

At the beginning of the week, the USDJPY currency pair set a new monthly low at 153.7. This was followed by an attempted rebound, but the bears quickly regained control of the situation. Buying the yen against the dollar has long been just a short-term speculation, but now the strengthening of the Japanese currency may finally become a sustainable trend. The news background of the last few days points in favor of such a scenario.

Last week, the Bank of Japan took another step toward moving away from ultra-loose monetary policy by raising its key rate to 0.5%. However, according to Bloomberg analysts, investors somewhat overlooked the Japanese regulator's decision to start shrinking its balance sheet. Although the real reduction in the volume of securities will only take place in early 2028, the fact itself may increase the yield and appeal of yen-denominated bonds.

Reuters experts pay attention to the upcoming changes in the Board of Directors of the Bank of Japan. Seiji Adachi will leave his post in March, and Toyoaki Nakamura will do the same in June. Both officials have historically been in favor of dovish monetary policy, which corresponded to the approach of the former Governor of the Japanese regulator Haruhiko Kuroda. The current Governor Kazuo Ueda nominated Junko Koeda, who has a noticeably more hawkish view, to join the Bank of Japan board.

During his speech today, Deputy Governor Ryozo Himino confirmed officials' intention to continue raising interest rates. In his opinion, it is no longer normal for Japan to have negative real interest rates. If inflation is not falling toward the 2% target, then the Bank of Japan must raise rates to that level. According to Himino's estimates, by doing so, the Japanese economy will return to positive real rates, which would favor investors and support the yen.

The USDJPY currency pair has been declining smoothly in recent weeks, without being oversold on technical indicators. Therefore, there are no obstacles now for another descent to the 153.7 level.

Consider the following trading strategy:

Sell USDJPY at the current price. Take profit – 153.7. Stop loss – 156.5.