It is widely expected that the Bank of Japan (BoJ) will maintain its ultra-loose Policy Rate at -0.1% tomorrow. The timing for the event is not set, but it is generally expected to hit the wires at about 3 am GMT.

Expectations?

Expectations of a policy shift out of negative territory increased exponentially in recent trading based on commentary from the BoJ Governor Kazuo Ueda, noting that ‘handling monetary policy will get tougher from the year-end and through next year’. However, reports later surfaced that Ueda’s comments were not intended to provide direction for a potential rate change.

Ultimately, though, according to a Reuters poll, the BoJ is anticipated to put a cap on negative interest rates by the end of 2024. Reuters also commented in one of their latest articles: ‘While none of the economists in the poll predicted changes at this week’s meeting, six of 28 economists, or 21%, said the BoJ would start dismantling current monetary conditions in January’.

Analysts at ING also noted the following:

‘We expect the BoJ to maintain all its major policy settings, though the overall tone about future policy at the press conference and statement could start to soften’.

The bottom line is that should language from the Monetary Policy Statement echo a hawkish vibe, this could see a marked move to the downside in the USD/JPY currency pair.

USD/JPY Chart Studies

In the longer term, the USD/JPY recoiled lower from channel resistance taken from the high of ¥125.86 in October, joined by negative divergence from the Relative Strength Index (RSI) from the overbought territory on the monthly chart. The Research Team recently pointed out that this barrier was also tested in October 2022 and sparked a rather meaningful correction to a low of ¥127.22 at the beginning of 2023.

The recent sell-off has led the currency pair to dip under a noted support level on the monthly scale at ¥143.85. Critically, if the unit overpowers bids around this technical support, this could bring another layer of monthly support to light as far south as ¥138.74.

Meanwhile, from the daily chart, we can see that price action recently rebounded from support, coming in between ¥140.42 and ¥141.79. As you can see, this area is made up of a 50.0% retracement ratio, a 38.2% Fibonacci retracement ratio and a horizontal level that is also bolstered by positive hidden divergence out of the RSI. Therefore, should bulls maintain their current position, targeting daily resistance at ¥144.68 could be on the table, whereas a move south of the daily support zone will likely connect with a daily ascending support line taken from the low of ¥127.22.

Charts: TradingView

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