Following a raft of mixed messages from the Bank of Japan (BoJ) and stronger-than-expected wage negotiations for corporate Japan, the central bank stepped up overnight and ended eight years of negative interest rate policy (NIRP) as well as putting a cap on yield curve control (YCC). The BoJ raised its Policy Rate by 10bps for the first time in nearly two decades, increasing the rate to a range between 0.0% to 0.1% from -0.1%. This is quite the contrast to other major G10 central banks, with the Fed, the Swiss National Bank (SNB) and the Bank of England (BoE) poised to remain on hold this week.

Ahead of the event, markets were pricing in about a 50/50-coin toss on whether a rate hike would unfold, but interestingly, the markets are also still pricing in at least another two rate hikes on top of today’s push.

Given the lack of indication in forward guidance in terms of any additional policy firming—despite the BoJ clearly leaving the door ajar for additional rate hikes down the road, which is inevitable according to some desks—this was a tricky market to trade. On one hand, the rate hike was clearly hawkish (albeit expected), yet the lack of any form of a clear signal was dovish. This helps explain why we saw a decline in the Japanese yen (JPY), which led the USD/JPY currency pair higher, up +0.8% ahead of the US cash open.

USD/JPY on the Verge of Refreshing Multi-Year Highs

The recent upside in the US dollar (USD) versus the JPY has landed price action at the door of notable resistance on the monthly chart at ¥150.80. As seen from the chart, the level, along with monthly channel resistance, taken from the high of ¥125.85, welcomed selling in late 2022, followed by another reaction visible in late 2023. However, the aforementioned reaction lacked vigour, leaving neighbouring support on the monthly chart unchallenged at ¥138.42. This, coupled with the underlying trend facing north and the recent BoJ announcement, positions the currency pair to perhaps take on current resistance and retest the mettle of monthly channel resistance.

Nearer to home, however, the daily chart has buyers and sellers battling for position ahead of resistance at ¥150.78. This follows a one-sided push through resistance at ¥149.58 (now marked support). In view of the above information, follow-through buying could have price puncture current monthly and daily resistances (¥150.80/78) to target at least daily resistance at ¥151.72, a level nestled just south of the ¥151.94 October 2022 peak. Consuming this high would have the market reach highs not seen since the late 1990s!

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