The yen continues to rise in forex supported by the Bank of Japan

Yen Continues to Rise in Forex as Traders Bet on BoJ Policy Change

The yen was the strongest currency in forex as traders reacted to weak PMI data in the manufacturing sector over the weekend and the opportunity for the Bank of Japan to correct policy.

We had a risky tone in the FX and stock markets today as the latest round of PMI data weighed on sentiment and subsequently benefited the yen. China’s manufacturing PMI fell at the fastest pace since February 2020, according to official data from NBS (National Bureau of Statistics). The non-manufacturing (services) PMI fell to 41.6, pushing the composite index down to 42.6. And earlier today, Caixin’s private report also showed contract manufacturing for a sixth month, albeit at a slower pace of 49. However, with all PMI numbers for China now negative, this reinforces further expectations of weaker global growth and helped the yen receives refuge flows. However, hopes that the Bank of Japan is on the verge of exiting negative rates also supported the yen in forex.

On December 20, the Bank of Japan (BOJ) surprised the markets by doubling its target range for the 10-year JGB from +/-0.25% to +/-0.5%. Markets saw the move as another move for the BOJ to back away from its ultra-loose monetary policy, leading to large purchases of the Japanese yen and selling of local equities.

forex yen January 3, 2023

By comparison, many JPY pairs recorded their biggest daily losses since Brexit in 2016, with AUD/JPY, NZD/JPY and GBP/JPY falling more than 5% to daily lows. And while prices pulled back towards the end of the year (which smacks of end-of-month/quarter/year flows), we’ve since seen the yen rise again as we approach the new year. Low liquidity and moderate risk aversion to equities in Asia are also helping to strengthen the yen.

Bank of Japan Governor Kuroda has since dismissed claims that the central bank is abandoning its super-loose policy, but with inflation nearly doubling its target from 2% to 3.8% and Kuroda’s expectations for wage hikes are slim who believe him. In addition, the Japanese prime minister has stated his desire for more flexibility for the 2% inflation target (indicating that he expects inflation to remain high for a long time), which further strengthens the case for a return to interest rates. to positive territory. I expect the BOJ to bounce back more over time, as evidenced by the stronger yen.

USD/JPY daily chart

forex yen dollar/yen January 3, 2023Source: Tradingview, Stone X

USD/JPY briefly traded below 130 today, hitting its lowest level since June. On the daily chart, the trend is clearly down, with the year-end pullback holding below the 200-day EMA. The pair is on track for a bearish outside day, although if it closes above the 130.39 low it would raise the possibility of a false break (and higher pullback). Also note that the RSI(2) is oversold so bears may want to stay nimble and stick to short term intraday time frames. If prices return, this would be a welcome opportunity to consolidate into a small rally for an early move towards 128 and 126.40.

The minutes of the December FOMC meeting will be published on Wednesday, and although I doubt it will be as effective, any further hints of a lower final rate could weigh on the pair.

AUD/JPY 1 hour chart

aud/yen forex 03012023Source: Tradingview, Stone X

The price of the AUD/JPY pair followed the drop in stock futures, but has since retraced those previous losses. The hourly chart shows that it was trying to break below the weekly pivot S1 before closing it and has spent the last two hours trying to get back to 89.0. However, this could be an opportunity for bears to reset ahead of the European session and try to break below 88. The trend remains bearish below 89.10 and down to 87.

Matt Simpson, » Official site stock exchange FOMC

Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.

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