Image Source: Pixabay
 

Rates to Stay Low

The Japanese Yen has come under pressure across the European open on Friday following seemingly dovish comments from incoming BOJ governor Ueda. Speaking at the Japanese Diet, Ueda told members of parliament that he felt the BOJ’s ultra-loose monetary policy is still appropriate for now and signaled that he is in no rush to raise rates. There has been a great deal of speculation regarding Ueda’s views on monetary policy and with these comments marking his first formal remarks, traders have gained some important clarity. The initial market reaction has seen the Nikkei rallying while JPY comes off.
 

Uncertainty Ahead for Japan

While Ueda suggested there was room for adjusting the bank’s yield curve control target, urging the BOJ to be creative with monetary policy, the timing was still the key issue to be resolved, according to Ueda. In terms of the broader outlook for the economy, Ueda cited his view that the surge in inflation was a function of elevated import costs, not heightened demand, and warned that there is a great deal of uncertainty in the Japanese economic outlook.
 

Continuity For Now

Further out, Ueda said that while it will likely take some time before trend inflation is sustainably at or above 2%, once there the BOJ consider normalizing monetary policy. Notably, Ueda said that this would be achieved through hiking rates on deposits held at the bank by financial institutions rather than selling bonds. The key message, for now, is one of continuity with Ueda clearly not looking to rock the boat. With this in mind, JPY is likely to remain pressured while Japanese asset prices should remain supported.
 

Technical Views

USDJPY

(Click on image to enlarge)

The rally off the lows in USDJPY has seen the market breaking out above the bear channel from last year’s highs and above the 132.91 level. While above here, the focus is on a continuation higher towards the 139.33 level, in line with bullish momentum studies readings. The retail market remains heavily short, encouraging a further push higher.

More By This Author: