On Wednesday (January 18), the market will usher in the Bank of Japan’s interest rate decision. Investors are concerned about the direction of the Bank of Japan’s monetary policy. Once there is a major change, the USD/JPY may experience extreme market conditions.
crazy day
Markets are expecting a wild day for the yen on Wednesday.
The Bank of Japan will announce its interest rate decision tomorrow.The interest rate is the first official meeting after the Bank of Japan adjusts the government bond yield curve (YCC). With the Federal Reserve slowing down the pace of raising interest rates, the U.S. dollar has fallen sharply, and the recent appreciation of the yen has accelerated. The continued decline in international energy prices may push the Bank of Japan to give an updated view on the inflation situation. As inflation picks up,The Bank of Japan may adjust monetary policy.
In the past few decades, Japanese institutional investors and retail investors have been a force that cannot be ignored in the global financial market. Especially in the European and American bond markets, Japanese funds have always been the largest buyers.
Japan is an export-oriented country. The central bank has maintained low interest rates for many years, making the yen financing cost extremely low. The government bond yield curve (YCC) adjusted by the Bank of Japan in late December is mainly aimed at the 10-year government bond yield, which is the benchmark for Japan’s domestic financing costs. in other words,The Bank of Japan expanded the fluctuation range of the 10-year government bond yield from 0.25% to 0.5%, and Japan’s domestic nominal financing costs have at least doubled.finally,Japanese funds sold off their European and American bonds due to rising financing costs, and the funds returned to Japan.The depreciation of the U.S. dollar has accelerated the appreciation of the yen.
The Bank of Japan has repeatedly stated that the adjustment of YCC is to allow the loose monetary policy to continue, not a signal that monetary policy is turning to tighten. Investors, however, sold bonds and the yen surged, suggesting the market disagrees with the BOJ.
Therefore, tomorrow’s interest rate decision is extremely important,Investors focus on the BOJ’s stance on inflation, and the BOJ will revisit its easing policy, once there is a major change, the yen will still face great volatility risks after its continuous rise. 2023 The first black swan is spreading its wings.
Outlook
As the core currency of the global carry trade,Yen could soar to 120.00 if Bank of Japan adjusts monetary policythe global bond market may intensify the sell-off, which in turn will impact global asset prices.If the Bank of Japan stays on hold, USD/JPY may start a rebound and rise to 140.00 again.
in addition,Bank of Japan governor to change in April, the candidate for the next governor and his monetary policy orientation are still unclear, and the market may overreact to the performance of the yen, which may lead to extreme fluctuations in the yen. The yen will remain highly volatile until April.
Focusing on the Bank of Japan’s interest rate decision at 11:00 on January 18 (GMT+8), the market may explode 24 hours after the meeting begins.
USD/JPY trend: The short-term downward channel may be broken, focusing on the 130.00 line
In the market trend driven by major data events, it is advisable to abandon short-term support and resistance, and instead focus on key price levels above the daily and weekly levels.
The daily chart shows that USD/JPY maintains a volatile downward trend, and the green downward channel is the main reference in the near future. Judging from the overall situation, the US and Japan are still on the downward side, and 130.00-132.00 is the key pressure. After all, 130.00 is an integer price and a psychological threshold. A bounce but 130.00 remains bearish. If the exchange rate breaks through 135.00, it will rebound again. Once the action of stepping back to 132.00-130.00 is completed, the market outlook is expected to hit 138.00-140.00 again.
specific strategypay attention to the 130.00 mark,If the USD/JPY returns above 130.00, consider regaining long positions, looking at 133.00-134.00; but after rebounding at 130.00, continue to hold short positions, looking at 125.00-124.00. Limit trading should be considered.
(by Arthur)
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Tags: Black SwanBank Japan announces interest rate Wednesday wary USDJPY extreme moves
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