The Japanese yen is down sharply on Thursday. In the European session, USD/JPY is trading at 149.12, up 0.64%. This is the yen’s lowest level against the US dollar since November 27.

BoJ’s Uchida hints at policy shift

The Bank of Japan dropped its latest hint of a shift in monetary policy earlier today. BoJ Deputy Governor Shinichi Uchida said that even if the BoJ were to end negative rates, it was unlikely to “keep raising the interest rate rapidly”. Uchida added that the central bank would likely terminate its massive stimulus once the goal of a sustainable and stable inflation rate of 2% was within reach.

The BoJ has been carefully laying the groundwork for normalising policy, which would be a sea-change in policy and would likely send the Japanese yen sharply higher. An exit from negative rates, which is equivalent to a hike in rates, appears to be a question of timing. The markets are expecting the central bank to make a move in March or April, although the June meeting is also a possibility.

The Federal Reserve continues to push back against rate cut expectations. Four Fed officials signalled on Wednesday that the Fed is not on the cusp of a historic interest rate cut after its steep rate-tightening cycle which has tamed inflation.

Since last week’s policy meeting, a string of Fed members have come out with the message that inflation is heading in the right direction but the Fed plans to be patient and is in no rush to lower rates. The markets have taken note of the Fed’s reluctance and have pared expectations of a rate cut in March to 18%, down from over 70% in January, according to the CME’s Fed Watch tool.

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USD/JPY Technical

• USD/JPY is testing resistance at 149.05. Above, there is resistance in 149.33
• There is support at 148.42 and 148.02

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