Seeing the Japanese yen strengthen is not all too common in the past two months and with the pair now down 0.7% to 155.12, the yen is on course to equal its best showing against the dollar in a little over a week. And looking further back, this would be the biggest daily decline for the pair since 10 October. So, what gives?
The move today looks to be helped by BOJ governor Ueda putting out a more hawkish rhetoric. For a couple of weeks now, we’ve seen policymakers come out to declare their intent to hike rates but fall short of explicitly wanting to challenge the government and take a step that will run against prime minister Takaichi’s fiscal plans. But today, Ueda definitely didn’t hold back on that:
- BOJ governor Ueda: Delaying rate hike for too long could cause sharp rise in inflation
- BOJ governor Ueda says will raise rates if prices, economy move as forecast
- BOJ governor Ueda flags FX-driven inflation risks as households feel squeeze from higher prices
And with USD/JPY already seeing sellers hold near-term control since last week by keeping price action below the key hourly moving averages, that is helping to give more impetus to the selling today.
This now tees up a test of bids around the 155.00 mark next for the pair. Come tomorrow, there will also be a huge chunk of option expiries at the figure level. So, that will keep things interesting as the pair closes in on fresh two-week lows. Will buyers step in to try and reclaim some momentum? Or are we in the midst of a shift in market odds in trying to price in a rate hike for December?
For now, it feels like we’re caught somewhere in between. Before today, a rate hike by the BOJ in December seems dead in the water. However, Kuroda is starting to breathe some life into that argument again. So, we’ll have to see if there is going to be more of a push in the days/weeks ahead before the decision takes place on 19 December.
This article was written by Justin Low at investinglive.com.