Japanese Yen plummets to fresh two-week low against USD after BoJ policy decision

• The Japanese Yen continues losing ground after the BoJ announced its policy decision.
• The BoJ ended the negative interest rates region and also scrapped the YCC policy. 
• Hawkish Fed expectations underpin the USD and further boost the USD/JPY pair.

The Japanese Yen (JPY) adds to its intraday losses and drops to a nearly two-week low against its American counterpart after the Bank of Japan (BoJ) announced to lift the interest rate for the first time since 2007. This marks the end of the negative interest rates era that began in 2016 and was accompanied by the scrapping of the Yield Curve Control (YCC) policy. The decision, meanwhile, was broadly in line with the market expectations and thus, failed to impress the JPY bulls. 

This, along with a modest US Dollar (USD) strength, bolstered by expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, lifts the USD/JPY pair closer to the 150.00 psychological mark. The intraday positive move, however, stalls near the said handle as traders now look to the post-meeting press conference, where comments by BoJ Governor Kazuo Ueda will influence the JPY and provide some impetus ahead of the FOMC meeting starting later today. 

Daily Digest Market Movers: Japanese Yen weakens across the board despite the BoJ’s policy shift

• The Japanese Yen languishes near its lowest level in over a week amid the Bank of Japan policy uncertainty, though expectations that the central bank will eventually pivot away from its ultra-easy policy settings help limit losses.
• BoJ Governor Kazuo Ueda offered a slightly bleaker assessment of the economy last week and said that policymakers will debate whether the outlook is bright enough to phase out the decade-long massive monetary stimulus.
• Japan’s largest union group said that the biggest companies agreed to raise wages by the heftiest in 33 years, reaffirming bets that the BoJ will soon exit the negative interest rates regime and the Yield Curve Control (YCC) policy.
• Japan’s Finance Minister Shunichi Suzuki said that this year’s wage negotiations have yielded record-high wage growth so far and that the government will deploy various policies so that positive momentum in wages continues.
• The hotter-than-expected US producer and consumer price data released last week forced investors to trim their bets for a more aggressive policy easing by the Federal Reserve, which continues to lend support to the US Dollar.
• Markets are now pricing in less than three 25 basis points rate cuts in 2024 and about a 51% chance that the Fed will begin the rate-cutting cycle at the June policy meeting, down sharply from expectations at the start of the year.  
• Bets that the Fed will keep rates higher for longer lift the yield on benchmark 10-year US government bonds to a three-week high, which adds to the USD strength and supports prospects for further move up for the USD/JPY pair.
• Traders, however, seem reluctant to place aggressive directional bets ahead of the highly-anticipated BoJ policy decision on Tuesday, which will be followed by the outcome of the two-day FOMC meeting on Wednesday.

Technical Analysis: USD/JPY bulls now await a move beyond the 150.00 mark before placing fresh bets

From a technical perspective, the USD/JPY pair is holding above the 61.8% Fibonacci retracement level of the February-March downfall and seems poised to climb further. The constructive outlook is reinforced by the fact that oscillators on the daily chart have just started gaining positive traction. Hence, some follow-through strength towards the 149.75-149.80 horizontal barrier, en route to the 150.00 psychological mark, looks like a distinct possibility. A sustained strength beyond the latter might trigger a fresh bout of a short-covering move towards the 150.65-150.70 region before bulls aim to retest the YTD peak, around the 151.00 mark touched on February 13.

On the flip side, the 149.00 round-figure mark now seems to have emerged as an immediate support. Any further slide is more likely to attract some dip-buying and remain limited near the 148.30 region. This is followed by the 148.00 round figure, below which the USD/JPY pair could accelerate the downfall towards the 100-day Simple Moving Average (SMA), currently pegged near the 147.65 region. A convincing break below might shift the bias in favour of bearish traders and drag spot prices further towards the 147.00 mark en route to the monthly swing low, around the 146.50-146.45 region.