- USDJPY retreats from a near two-week high above 156.00.
- BoJ hike largely priced in; Ueda’s policy guidance holds the key.
- Downside risks build below 155.00 on potential yen strength.
USDJPY is edging lower, snapping a three-session winning streak that lifted the pair to a near two-week high of 156.40 following the Fed’s rate hike yesterday. Attention now shifts to Friday’s BoJ policy meeting, with markets expecting a 25bp hike to a 31-year high of 1.25% as policymakers respond to persistent inflation pressures, partly fuelled by elevated oil prices.
With the hike largely priced in, Governor Kazuo Ueda’s guidance on the pace of further tightening will be key. Markets expect additional tightening beyond Friday, leaving the yen vulnerable to disappointment if policymakers stick to a gradual approach. A dovish message could therefore disappoint yen bulls, pushing USDJPY above the 20-day simple moving average (SMA) near 156.87, marking a retracement of more than half of the decline from the monthly high around 160.40.
Conversely, a more hawkish signal that additional hikes could follow this year, amid expectations that the BoJ could accelerate the pace of tightening as inflation risks increase, could revive yen demand and push USDJPY lower. A move below former resistance-turned-support at 155.00 could expose deeper declines towards recent lows near 153.30, followed by the seven-month low near 152.87.
Japanese officials have meanwhile reiterated their commitment to maintaining orderly currency moves in coordination with the US, keeping intervention risk on traders’ radar, should yen weakness become excessive. Officials stressed that their stance remains unchanged since the joint US-Japan yen-buying intervention in late July.
For now, USDJPY’s post-Fed recovery remains constrained near 155.75. Momentum is also subdued, with the MACD below zero and the RSI still below its neutral 50 level. Still, wide US-Japan rate differentials and elevated oil prices remain headwinds for the yen, helping underpin USDJPY. At the same time, BoJ hawkishness and intervention risk could limit further upside.
