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Ueda Hints at Potential Policy Shift

In the first clear sign that the BoJ is contemplating a shift in policy, BoJ’s Ueda told markets yesterday that the bank sees good reason for a shift in policy into 2024. While the BoJ expects inflation to cool near-term, the bank projects that prices will likely pick up firmly into next year, and as such, this would be a good time to exit the bank’s current monetary easing operations.

There has been plenty of speculation over recent months, with the change of BoJ leadership, that the bank might look to exit its current stimulus program. However, Ueda has consistently pushed back against these calls, warning that the BoJ is in no rush to exit stimulus and will remain patient while it waits for inflation to show a sustained move above target, requiring tightening.
 

Implied Volatility Rising For July BoJ

However, it seems the market is not buying this guidance. Pricing in the option market reflects large implied volatility around the July BoJ meeting meaning that traders are wary of a potential move. Recently, Japanese officials and BoJ members have commented on the weakness in JPY and the potential for action if needed, and as such, it seems that traders are anticipating some sort of adjustment at the July meeting aimed at pushing JPY higher.
 

Technical Views

USDJPY

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The rally in USDJPY has seen the market breaking out above the bull channel highs. Price is now testing the 145 level resistance. This is a key area for the pair and a break higher here will be firmly bullish, targeting 151.83 longer-run. To the downside, below 142.21, 138 is the big support with the bull channel lows there also. 

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