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The Japanese yen is showing limited movement on Monday. In the North American session, USD/JPY is trading at 151.25, down 0.13%.

Yen can’t find its footing

Last week’s Bank of Japan was dramatic as the central bank raised interest rates for the first time since 2007. The move did not catch the markets completely by surprise, as some media reports ahead of the meeting said the BoJ would raise rates and investors were looking at both the March and April meetings as strong possibilities for a rate hike.

The yen did not respond to the rate hike with gains, as might have been expected. There are several reasons for this. First, the actual tightening was limited, with rates rising from -0.10% to 0.10%. This means that although the BoJ rate is now in positive territory, the move had little impact on the wide USD/JPY rate differential. BoJ Governor Ueda said after the meeting that despite the hike, monetary policy would remain accommodative, saying that there was “some distance to go” until inflation climbs to the 2% target.

As well, many investors approached the BoJ meeting with a “buy the rumour, sell the fact” approach and this resulted in heavy selling of the yen after the rate announcement. The yen slipped 1.60% last week and dropped as low as 151.86, its lowest level since November 2023.

The Japanese yen has dropped to levels that could invite intervention – the Ministry of Finance intervened last September and October when the yen dropped to around the 152 line. If the yen continues to lose ground, the threat of intervention will become greater.

In the US, the markets have priced in three rate cuts this year, and the Fed also projected three cuts this year at last week’s meeting. However, Atlanta Federal Reserve President Raphael Bostic sounded hawkish on Friday when he said that he expects only one quarter-point cut this year.

Bostic said that he was “definitely less confident than I was in December” that inflation will continue to drop towards the 2% target, as he noted that inflation remains stubbornly high and the US economy has been more resilient than he expected.

USD/JPY Technical

  • USD/JPY is putting pressure on resistance at 151.44. Above, there is resistance at 151.88
  • 151.02 and 15058 are providing support


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