The Bank of Japan’s main advantage is timing. By the time it acts, the outcome of the Fed meeting and the markets’ reaction will already be clear, allowing it to adjust its own accompanying statement accordingly. Will the USD/JPY pair benefit from this? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Rising oil prices and a weaker yen are spurring inflation in Japan.
- The Bank of Japan’s cautious stance could continue to weigh on the yen.
- Timing is on the BoJ’s side, allowing it to react after the Fed’s policy decisions.
- Pullbacks toward 158.3 and 157.7 may offer opportunities to open long positions on the USD/JPY.
Weekly Fundamental Forecast for Yen
Ignoring the problem will not make it disappear. Markets are closely watching how central banks will respond to the potential combination of rising inflation and slowing economic growth amid the Middle East conflict. The challenge is particularly acute for the Bank of Japan, as Japan relies on imports for roughly 90% of its energy needs. Rising oil prices, coupled with a weak yen, could push consumer prices sharply higher. At the same time, Sanae Takaichi’s government has shown little enthusiasm for raising the overnight rate.
USD/JPY and Crude Price
Source: Bloomberg.
None of the 51 Bloomberg analysts expect the Bank of Japan to tighten monetary policy in March, but the futures market puts a 60% probability on this happening in April. The question remains: will the BoJ dash these expectations by citing caution due to the Middle East conflict, or will it provide a clear signal that it will resume monetary tightening?
The BoJ’s hesitancy could weigh heavily on the yen. The Reserve Bank of Australia has already raised rates, and the derivatives market suggests a 69% probability that the European Central Bank will follow suit by June. Hawkish signals from the Fed are likely to push USD/JPY quotes higher. Geopolitical tensions have driven the pair above 20-month highs, but ahead of a series of central bank meetings, speculators have begun taking profits on their long positions.
USD/JPY Price and Speculative Positions on Japanese Yen
Source: Bloomberg.
The Bank of Japan’s main advantage is timing. Its upcoming meeting is scheduled just a few hours after the Federal Reserve releases its results, including revised forecasts for the federal funds rate. This allows the BoJ to observe how USD/JPY quotes react to Jerome Powell’s comments and adjust its accompanying statement accordingly.
Japanese officials appear to view the current USD/JPY rally as unfavorable. Finance Minister Satsuki Katayama continues to caution investors through verbal interventions, noting that financial markets are experiencing heightened volatility. At the same time, the pair has become detached from fundamental factors, with the current deviation particularly pronounced. Under these conditions, Japanese officials remain ready to take action at any moment, maintaining close coordination with Washington.
While there is no doubt about the Japanese government’s willingness to intervene in the Forex market, success is likely to be limited when the rally is driven primarily by oil prices and the US dollar, factors largely outside the BoJ’s control. If the Fed fails to temper bulls, the BoJ is unlikely to succeed either. In such a scenario, the Ministry of Finance may have no choice but to wait for a more favorable moment to act.
Weekly USDJPY Trading Plan
Against this backdrop, a pullback in USD/JPY quotes toward support levels at 158.3 and 157.7, or a rebound above the resistance at 159.1, could present a buying opportunity. At the same time, upcoming central bank meetings may trigger increased volatility.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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