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      USDJPY: Upward Momentum Nears Stall As Market Focus Turns to BOJ's Second Monetary Policy Statement in 2023

      Forex MarketInflation and RecessionCentral Bank Policy TrendsEconomic Trends
      Summary:

      USDJPY encountered some supply pressure on Thursday due to a variety of factors. Recession fears favored the safe-haven JPY, which in turn weighed on the pair amid a modest decline in the USD. The market will now focus on the Bank of Japan's second monetary policy statement of the year to be released on March 10. More risky events should help investors determine the pair's next move.

      Sell USDJPY
      End Time
      CLOSED

      136.800

      ENTRY PRICE

      131.700

      TGT PRICE

      139.000

      SL PRICE

      130.922 -0.611 -0.46%

      2135

      Points

      Profit

      131.700

      TGT PRICE

      134.665

      CLOSING

      136.800

      ENTRY PRICE

      139.000

      SL PRICE

      Fundamentals

      USDJPY faced some selling pressure on Thursday and broke away from its highest level since mid-December last year, near the 137.90 area touched the day before. The pair continued its steady intraday downtrend in the first half of the European session and fell to a new daily low near the 136.00 round number range in the last hour.
      Fears of a further downturn in the global economy continue to weigh on investor sentiment, which in turn is seen as favoring the safe-haven Japanese yen and dragging the U.S. dollar lower against the Japanese yen.
      Such concerns were further fueled by softer Chinese inflation data released earlier this week on Thursday, which showed that demand in mainland China remains lukewarm and dashed hopes for a strong recovery in the world's second-largest economy. That, along with a modest pullback in the dollar from a three-month high, helped provide a firm footing around the major currency.
      However, with the market expecting the BOJ to stick to its dovish stance to support the fragile domestic economy, the downside for the USDJPY is more likely to remain limited, at least for now.
      The BOJ will release its second monetary policy statement of the year on March 10. This statement usually has a very strong impact on the outlook for the Japanese yen, as it is closely linked to short-term interest rates and the overall strength of the currency.
      Nevertheless, the BOJ's March meeting is likely to maintain the existing monetary policy unchanged, but the market still needs to pay attention to the possibility of BOJ adjusting its monetary policy. In the short term, if the bank adjusts monetary policy, it may be a combination of hawkish and dovish policies, adjusting the Yield curve control (YCC) while also maintaining the scale of bond purchases or strengthening forward guidance from the perspective of maintaining financial market stability.
      The second and third meetings after Kazuo Ueda took office may be the right time to adjust monetary policy. It is highly likely that the current monetary policy will remain unchanged at the March interest rate meeting, but investors still need to be reminded to pay attention to the small probability risk of the BOJ making adjustments.
      According to a Bloomberg survey, 46 out of 49 economists predict no change in BOJ policy this time around. However, a few investment banks, such as Goldman Sachs and BNP Paribas, believe that as Haruhiko Kuroda ends his 10-year term as BOJ governor, he may adjust or cancel his yield curve control program. If Haruhiko Kuroda decides to make significant changes at this meeting, he will also be breaking with the past practice of BOJ governors. Also, since the BOJ began issuing regular policy statements in 1998, none of the four governors before Haruhiko Kuroda had changed policy at their last meeting.
      Overall, the Bank of Japan will thereafter enter the monetary policy "normalization" cycle, the end of its decades always maintained ultra-low interest rate policy, while the Fed is in the peak rate hikes to enter a new rate cut cycle, then the Japanese yen is likely to soar. The USDJPY exchange rate will fall from the current 136.00 to 85.00, which means that the Japanese yen will appreciate by up to 60%.
      Currently, the Japanese yen exchange rate is already 30% below its fair value due to the BOJ's unchanged zero interest rate policy while other developed economies' central banks collectively raise rates. Therefore, once the BOJ's ultra-low interest rate policy loosened, the currency market potential will be turned upside down. However, given various factors, the possibility of the BOJ raising rates aggressively remains low.
      In contrast, Fed Chairman Jerome Powell reiterated Wednesday that interest rates will have to go higher, and possibly sooner, to curb stubbornly high inflation. The fact that the market now expects a sharp 50 basis point hike at the next FOMC meeting on March 21-21 is more likely, which remains supportive of higher U.S. Treasury yields. This in turn favors the USD bulls and supports the prospect of some buying interest around the USDJPY on dips, so caution is needed before preparing for any meaningful corrective declines.
      USDJPY: Upward Momentum Nears Stall As Market Focus Turns to BOJ's Second Monetary Policy Statement in 2023_1

      Technical Analysis

      The daily time frame for the USDJPY looks like it could start to move to the downside. While we expect the USD to rise further on Friday's non-farm payroll report and push the pair higher, we think another move higher and a break above the 138.20 level is becoming out of reach. The upside action is blunted or even stalled; meanwhile, the 100 and 200 SMAs have managed to prevent the price from moving higher by critical factors. During the day, the pair is likely to trade in a range, expected to be narrow at 136.00 and 137.00. Therefore, the primary trading strategy is to go short at highs.

      Trading Recommendations

      Trading Direction: Short
      Entry Price: 136.80
      Target Price: 131.70
      Stop Loss: 139.00
      Valid Until: 2022-03-23 23:55:00
      Support: 135.70, 135.25, 134.05
      Resistance: 136.70, 137.91, 138.20
      Risk Warnings and Investment Disclaimers
      You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

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      Eva Chen

      Analyst

      Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

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