The risk of a downside move in USD/JPY is being closely watched. The pair has been trading around the mid-147 yen level in Tokyo, with a slightly heavy tone, and briefly touched the 146.10 yen range.
Amidst a decline in Asian stocks, with the Nikkei 225 closing down by 587 points and the Hang Seng Index in Hong Kong also falling more than 1%, there is caution in the market leading to yen buying. Moody’s downgraded the credit outlook for China on the 5th and for Hong Kong and Macau yesterday, which contributed to risk aversion and led to unwinding of positions in favor of the yen.
In addition, news agencies have reported that the Bank of Japan’s monetary policy decision meeting scheduled for the 18th and 19th of this month is now seen as a meeting where the possibility of lifting negative interest rates is being considered. This has increased the probability of a rate hike based on the short-term interest rate market movement and has led to an increase in long-term bond yields in Japan, further strengthening the yen.
Remarks from BOJ Deputy Governor Imamiya during a speech yesterday suggesting that achieving a successful exit is entirely possible have been seen as a hawkish signal. Also, BOJ Governor Kuroda’s comments today during parliamentary questioning, mentioning that the situation will become even more challenging from year-end into next year, have fueled expectations of negative interest rate removal.
In light of these developments, the market is expecting a trend of USD weakness and JPY strength. The shift in expectations for the Bank of Japan’s monetary policy decision meeting, which was anticipated to be uneventful, could be a significant catalyst. USD/JPY is moving toward testing the 145 yen range.
Cross yen pairs are also expected to exhibit a broadly weaker tone, with EUR/JPY aiming for the 157 yen range.
EUR/USD and GBP/USD, on the other hand, seem to be trading relatively calmly. While EUR/USD faces resistance on the upside, the overall price range appears to be contained. The bearish trend for the euro may continue, but the price range itself seems to be limited.
The USD/JPY short position was successfully navigated, and today’s focus remains on the upcoming US Non-Farm Payrolls (NFP) data scheduled for tomorrow.