Yen continues to weaken due to monetary policy differences

The Japanese Yen weakened to 151 against the US Dollar, its lowest level since 1990, hurt by hawkish indications from the US Federal Reserve, which could widen the yield differentials between the US and Japan, which has been weighing on the currency for years. The Yen is also still reeling from the BoJ’s policy announcement in November, which committed to patiently maintaining accommodative monetary settings but made no meaningful moves toward policy normalization. The BOJ kept its policy rate at -0.1% and the 10-year JGB yield target at around 0%, while making slight changes to its yield curve control strategy. The central bank redefined 1% as a loose “upper bound” rather than a rigid limit and removed the pledge to maintain that level with an offer to buy an unlimited amount of bonds.

BoJ Governor Kazuo Ueda emphasized the cautious attitude towards Japan’s monetary policy, and acknowledged the need for more evidence before making any adjustments. He said the inflation trend will gradually approach 2%, but they want to wait until they are more certain that sustainable achievement of the price target is in sight.

He reiterated, “Until then, we will maintain a negative interest rate and yield curve control framework.”

Meanwhile, the service sector morale barometer in Japan unexpectedly fell to 49.5 in October 2023 from 49.9 in the previous month, falling short of market expectations of 50.1. The latest figure showed the lowest level since January, as the corporate trend measure declined due to a decline in non-manufacturing business, while the employment indicator also fell. In addition, the household budget trend indicator remained stable, with a decline in housing-related items offsetting an increase in food-related items. At the same time, the economic outlook index fell to a ten-month low of 48.4 in October from 49.5 in September, reflecting concerns over the economy’s ability to recover sustainably in the face of continued price pressures.

Technical Overview

In the USDJPY big picture, currently the closest focus is on the 151.94 resistance (2022 high). Rejection at 151.94 followed by a sustained break of 145.07 resistance-turned-support would declare that the rise from 127.21 is complete, and turn the outlook bearish for 137.24 support and below. However, a sustained break of 151.94 will confirm the resumption of the long-term uptrend. The next targets are the FE61.8% projection of 102.59–151.94 drawdown and 127.21 at 157.71.

Intraday bias remains neutral and the outlook is unchanged. Further rally is expected as long as the 148.80 support holds. A strong break of the 151.72 high would resume the larger uptrend. However, a decisive break of 148.80 would indicate rejection of the 151.94 key resistance, and bring a deeper drop through 147.28 support.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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