Bank of Japan disappoints Yen bulls

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a> </strong></p>
<ul>
<li>Today, Bank of Japan offered zero guidance on rate hike in 2024</li>
<li>USDJPY climbs well past 200-day SMA</li>
<li>Higher-than-expected Japan CPI this Friday may see USJPY test 200-day SMA for support</li>
<li>Lower-than-expected Japan CPI may see USDJPY test 21-day SMA for resistance</li>
<li>Bloomberg model: 74% chance USDJPY will trade between 142.23-146.36 this week</li>
</ul>
<h3></h3>
<h3>Today, the BoJ maintained its benchmark rate at minus 0.1%, and made no changes to its yield curve control programme.</h3>
<p>More disappointingly for JPY bulls (those hoping prices would move higher) …</p>
<blockquote>
<h3><strong><em>the Japanese central bank failed to offer any hints of a rate hike in 2024.</em></strong></h3>
</blockquote>
<p>This keeps Japan as the last economy that’s still holding on to negative interest rates (-0.1%).</p>
<p>&nbsp;</p>
<h3><strong>How did the Yen react?</strong></h3>
<p>The absence of any “hawkish” clues prompted the Japanese Yen to weaken.</p>
<blockquote>
<h3><strong><em>USDJPY surged above its 200-day simple moving average (SMA – a widely followed technical indicator).</em></strong></h3>
</blockquote>
<p>The BoJ’s signal today, or lack thereof, also further fuelled the technical rebound in USDJPY, with the latter’s 14-day relative strength index (RSI) having broken below the 30 mark and into “oversold” territory.</p>
<p><img fetchpriority="high" decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/USDJPYDaily_18.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="79e6bbc3-9b84-4f8e-9c4d-055e854cff08" data-src="/s3-static/users/user16/USDJPYDaily_18.png" /></p>
<p><em>NOTE: From the textbook perspective of technical analysis, an asset’s prices tends to rebound once its 14-day RSI breaks below 30.</em></p>
<p>&nbsp;</p>
<p>In fact, at the time of writing, JPY is currently weaker against all of its G10 peers.</p>
<p><img decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/WCRS%20-%20JPY%20vs%20G10%20post%20BoJ%20Dec%202023.jpg" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="179e8aac-cd77-4e88-9667-f599b0ba8a2c" data-src="/s3-static/users/user16/WCRS%20-%20JPY%20vs%20G10%20post%20BoJ%20Dec%202023.jpg" /></p>
<p><em>NOTE: Markets tend to boost the currency if they believe that economy’s interest rates are going to move higher, and vice versa.</em></p>
<p>&nbsp;</p>
<h3><strong>How low could JPY go? </strong></h3>
<p>Perhaps not much, as long as markets can continue to hope for a BoJ rate hike in 2024.</p>
<p>And the earlier the better for Yen bulls.</p>
<p>To be clear, markets are still expecting the BoJ to exit its negative interest rates regime and finally jump on the rate-hike bandwagon in<strong> April.</strong></p>
<p>Markets are still predicting an <strong>86% chance </strong>of such an event, though those 86% odds are slightly lower compared to the 94% chance given prior to today’s BoJ policy decision.</p>
<blockquote>
<h3><strong><em>As long as markets continue to hope for a BoJ rates liftoff, that should keep the Yen supported and limit its downside in the interim.</em></strong></h3>
</blockquote>
<p>After all, Japan’s headline inflation (as measured by the consumer price index – CPI) has remained consistently above the BoJ’s target of 2% since April 2022.</p>
<p>Evidently, the BoJ wants to get further confirmation that inflation will remain sticky above 2%, before exiting its negative interest rates regime.</p>
<p>So with that in mind …</p>
<p>&nbsp;</p>
<h3><strong>Look out for the next Japan inflation numbers due Friday (Dec 22nd)!</strong></h3>
<p>Economists are forecasting that Japan’s national CPI (consumer price index – which measures inflation) rose by <strong>2.8% year-on-year </strong>(November 2023 vs. November 2022).</p>
<p>If so, that would be slightly lower than October’s 3.3% year-on-year CPI figure; but 2.8% is still well above the BoJ’s 2% inflation target.</p>
<p>&nbsp;</p>
<h3><strong>How might JPY move before Christmas?</strong></h3>
<p>Bloomberg’s FX forecast model predicts a <strong>74% chance</strong> that USDJPY will move between <strong>142.23-146.36</strong> this week.</p>
<ul>
<li>If Japan’s national CPI this Friday comes in <strong>above the market-expected 2.8%,</strong> paving the way for a BoJ rate hike, that could see USDJPY re-testing its <strong>200-day SMA for support.</strong>
<p>A daily close below the 200-day SMA may restore USDJPY to revisit the recent cycle low at 140.943 going into the new year.​​​​​​​</li>
</ul>
<p>&nbsp;</p>
<ul>
<li>However, a<strong> lacklustre CPI figure this Friday </strong>that pushes back forecasts for a BoJ rate hike even further may extend USDJPY’s recovery.
<p>JPY bulls may be enticed into testing this FX pair’s <strong>21-day SMA for resistance</strong> before the long Christmas weekend.</li>
</ul>
<hr />
<p><img decoding="async" class="size-full wp-image-54242 alignleft" src="https://www.investmacro.com/articles-analysis/wp-content/uploads/2014/07/Forex-Time-Logo.png" alt="Forex-Time-Logo" width="262" height="90" /><strong>Article by <span><a href="https://www.investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></span></strong></p>
<p><strong>ForexTime Ltd (FXTM)</strong> is an award winning international online forex broker regulated by CySEC 185/12 <a href="http://www.forextime.com" target="_blank" rel="noopener">www.forextime.com</a></p>