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In recent weeks we have been JPY bullish but switched to short-term bearish before the BOJ but price action so far has proved us wrong as the JPY has firmed but we expect a correction after the Fed today.

“The Bank of Japan has raised its benchmark interest rate to 0.25 per cent and outlined plans to halve its monthly bond purchases in a decisive move to tighten monetary policy. By a majority of 7-2, the BoJ raised its overnight interest rate to “around 0.25 per cent”, the highest level since the global financial crisis back in 2008, from the previous range of zero to 0.1 per cent.

The BoJ also said would reduce the monthly bond-buying to JPY 3 trillion in January-March 2026 from the current rate of around JPY 6 trillion to pursue normalisation of its monetary policy.

"Despite sluggish consumer spending, monetary officials sent a decisive signal by raising interest rates and allowing for a more gradual balance sheet reduction. Rising inflation expectations also open the path for ongoing monetary policy normalization by the BOJ. Barring major disruptions, the BOJ is on course to tighten further, with another interest hike by the start of next year," ( Fred Neumann, chief Asia economist at HSBC.)

The Bank of Japan however said it expects real interest rates to remain “significantly negative” adding that “accommodative financial conditions will continue to firmly support economic activity.” The JPY has been firmer after the meeting but will this continue?

Mizuho notes in relation to the rise in rates " We think the BoJ have used the current window of opportunity to hike (i.e., before the Fed starts easing). The weakness in the JPY was certainly a big pressure and with today’s move they may ensure that the JPY doesn’t strengthen too much when the Fed starts cutting rates."

This may well be true but in the short term we have a severely overbought JPY and the Fed coming up and the market expects them to be dovish so this is discounted. The yield advantage the USD has is significant and we could see carry traders come back in to go short the JPY. 

In our view we will probably see a correction in the JPY before higher prices.

JPY Volatility and Overbought

 CRUSHVOLATILITY

 CRUSRSI

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Technical Analysis

Our view of USD/JPY on the chart below with our entry stop and target.

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