Next Target for USDJPY at 146.50 After the Break Above 144.50

The USDJPY pair saw a sharp drop of 22 cents in August, falling below the 140 mark last Monday, reaching its lowest levels since July 2023. However, after that initial decline, the pair began to recover, steadily climbing and eventually breaking through the initial resistance at 144.50.

Unwinding of the Yen Carry Trade

The strengthening of the Japanese yen (JPY) wasn’t solely due to the U.S. dollar’s decline. A significant factor was the unwinding of the carry trade, which had been in place for the last four years. Bank of Japan (BOJ) Governor Ueda noted that the selling pressure on the yen had eased, as speculative holdings built up since 2020 had largely unwound.

USD/JPY Chart Daily – The 20 SMA Turned into Support

Though some resistance was forming around 144.50, the continued upward movement in price supported Ueda’s observations. The 20-day simple moving average (SMA) on the daily chart has now shifted to act as support, signaling a change in trend as the moving averages transition from resistance to support. This opens the path for the pair to potentially reach the 146.50 level, with the BOJ appearing aligned with this trajectory.

BOJ’s Monetary Policy Stance

Last week, the Bank of Japan decided to keep its benchmark short-term interest rate around 0.25%, in line with market expectations. Despite raising rates twice earlier this year (in March and July), the BOJ signaled no rush for further hikes. The central bank reaffirmed its outlook that Japan’s economy will continue to recover moderately, with private consumption bolstered by better corporate profits and increased business spending.

BOJ Monetary Policy Meeting Minutes for September

• Inflation Risk: Members expressed the need for vigilance regarding the risk of an inflation overshoot.
• Rate Hike Support: Many members agreed it was appropriate to raise interest rates to 0.25%, adjusting monetary support.
• Moderate Adjustment: A few members supported moderately adjusting the degree of monetary support.
• Economic Conditions: One member noted that economic conditions were strong enough to consider a slight increase in the current low policy rate.
• Weak Yen Concerns: One member raised concerns about the impact of rising inflation, driven by the weak yen, on household sentiment and small businesses’ costs.
• Gradual Rate Adjustment: A few members suggested that gradually adjusting low rates now would prevent the need for rapid rate hikes later.
• Capital Expenditure and Wages: One member recommended further adjusting monetary support if stronger capital expenditure and wage growth are confirmed.
• Risk Consideration: One member urged caution in assessing various risks before proceeding with monetary normalization.
• Market Expectations: One member cautioned against creating excessive market expectations for future rate hikes, as inflation expectations remain unanchored at 2%.
• Uncertainty on Neutral Rate: One member highlighted the difficulty of adjusting rates mechanically due to uncertainty around Japan’s neutral rate level.
• Cabinet Concerns: A cabinet minister representative warned of the need to be vigilant regarding the weak yen’s impact on inflation, household purchasing power, and risks to overseas economies.

USD/JPY Live Chart