With the Bank of Japan being the last major central bank decision left for this year and the last important macro releases of the year to come this week, the USD/JPY is the featured currency pair of the week. Ahead of the BoJ’s policy decision, we are witnessing a bit of an oversold bounce, which is not a major surprise by any means. Indeed, the risks remain skewed to the downside, which means there is the potential for further weakness in USD/JPY once this phase of profit-taking abates. Can the USD/JPY fall even more?Tracking bond yields lower, the USD/JPY has had a tough time in the last one and a half months. The pair has dropped from a peak of 151.91 in mid-November, to a low so far of 140.95 last week. This is more than a 1,000-pip drop or about 7.2%, which is not insignificant by any means. While it has bounced back in the last couple of trading sessions due to some “bargain hunting” amid oversold conditions, the downside may not be done just yet. With the Fed pivoting to a more dovish stance, yields could fall even more in the days and – as we move into a new year – weeks ahead. This should further reduce the appeal of the higher-yielding US dollar compared to some of the lower-yielding currencies, such as the Japanese yen. So, the USD/JPY’s selling may not be over just yet, especially if the BoJ turns out to be more hawkish than expected. Speaking of…
Will the BoJ deliver a surprise? The Bank of Japan is the last major central bank to announce its final monetary policy of the year on Tuesday, after the FOMC, ECB, BoE and SNB all kept their respective policies unchanged last week. The BoJ has remained the only major bank not to tighten its policy at all, but the pressure is growing on it to end the era of negative rates. Governor Kazuo Ueda’s recent comments have boosted expectations of a near-term shift in rates. However, this meeting might come too soon for that. The BoJ is slowly getting the market ready for its first hike in 16 years, which could come around April time. But will it deliver a surprise at this meeting? Even if it doesn’t, any hints of a near-term policy shift could potentially move the Japanese yen sharply. Core PCE Price Index is week’s key data highlightThe is winding down ahead of Christmas and New Year holiday. This week, we will have the last important macro releases of the year. As well as the BoJ meeting, we have a few data releases from the US, including Friday’s publication of the Fed’s favourite inflation measure. Here’s the full list of the important macro events relevant for the USD/JPY pair to watch this week:
Date
Time (GMT)
Currency
Data
Forecast
Previous
Tue Dec 19
Tentative
JPY
Monetary Policy Statement
Tentative
JPY
BOJ Policy Rate
-0.10%
-0.10%
Tentative
JPY
BOJ Press Conference
1:30pm
USD
Building Permits
1.46M
1.49M
Wed Dec 20
3:00pm
USD
CB Consumer Confidence
104.1
102.0
USD
Existing Home Sales
3.77M
3.79M
Thu Dec 21
1:30pm
USD
Final GDP q/q
5.2%
5.2%
USD
Unemployment Claims
215K
202K
USD
Final GDP Price Index q/q
3.6%
3.6%
USD
Philly Fed Manufacturing Index
-3.2
-5.9
Fri Dec 22
1:30pm
USD
Core PCE Price Index m/m
0.2%
0.2%
USD
Core Durable Goods Orders m/m
0.1%
0.0%
USD
Durable Goods Orders m/m
2.7%
-5.4%
3:00pm
USD
Revised UoM Consumer Sentiment
69.5
69.4
USD
New Home Sales
687K
679K
Despite a slightly stronger CPI report last week, the Federal Reserve caused the dollar to sell off and sent stocks and gold sharply higher after signalling a definitive end to its aggressive rate-hiking. The FOMC projected three rate cuts in the coming year. For the first time since March 2021, policymakers did not foresee any additional interest-rate increases in their projections. But US economic data has remained mixed, and if that trend continues markets may have to re-assess their views and push their rate cut expectations deeper into 2024. The Fed’s favourite inflation measure, the Core PCE Price index certainly has the potential to cause that shift. A weaker print would be welcomed by the markets – and the USD/JPY bears.
USD/JPY technical analysis(Click on image to enlarge)
