Japanese Yen Ticks Up As Market Looks Toward BOJ’s First 2024 Rate Call

• USD/JPY looks a bit tired after a strong run but remains well-supported
• Investors doubt that the BoJ will be tightening monetary policy this week
• Will it do so this year? Just possibly, but keep an eye on its wage-growth take

The Japanese Yen made modest gains on the United States Dollar in Europe on Monday in a market perhaps drifting as the Bank of Japan’s first monetary-policy meeting of the year gets under way.

The decision is due on Tuesday and market-watchers aren’t expecting any changes. Indeed, signs that inflation might be loosening its grip on the Japanese economy have seen bets pared that the longest period of ultra-low interest rates in modern history could be coming to an end. Those bets had supported the Yen at the end of 2023, as the prospect of aggressive rate cuts from the Federal Reserve stood in rare contrast with market hopes that Japan could see some tighter policy at last.

The BoJ has been trying to stoke sustainable domestic demand and pricing power for many years. However, while Japanese inflation has certainly risen, the BoJ has often expressed doubt that this was anything more than the importation of global price pressures.

Rate-setters are almost certain to argue that it needs more time to assess the truth of this, with its key short-term rates likely to stay at minus 0.1%.

For USD/JPY much is likely to depend on the BoJ’s assessment of likely wage growth, and anything it may say about longer-term Japanese government bond yields. Durable rises in either might offer the Yen some support.

The central banks’ quarterly outlook report will accompany the policy decision.

This month and early next are likely to see a raft of ‘on hold’ central banks. The BoJ will have the privilege of kicking the process off. The Fed will join in on the last day of this month.

USD/JPY Technical Analysis

USD/JPY Daily Chart Compiled Using TradingView

The US Dollar has gained in value by more nearly eight full Yen since January 2 so it’s perhaps unsurprising that USD/JPY momentum should be waning a little now. In any case the pair is edging up into overbought territory according to its Relative Strength Index so a pause is warranted even if another leg higher occurs over time.

For now the Dollar is faltering within a trading band between November 28’s intraday high of 148.81 and the first Fibonacci retracement of the rise from the lows of late March 2023 and November’s significant highs. That comes in at 146.69.

The upper boundary of that range was rejected once again on Friday and, while it will need to be topped convincingly if the bulls are to make another attempt at those highs, there doesn’t seem much sign of that happening yet. Still, the market will probably retain its broader upside bias for as long as that trading band holds.

–By David Cottle for DailyFX