USDJPY Continues Lower

Despite broadly better performance elsewhere in FX markets, USD remains firmly lower against JPY today. Heightened expectations of a second Trump presidency have fuelled a strengthening of USD against most trading partners this week. However, with rising speculation that the BOJ is on the cusp of delivering a double tightening package next week, JPY continues to strengthen.

BOJ in Focus

The BOJ recently signalled that it will announce details of discussions around a reduction in bond purchases when it meets next week. A reduction had been expected last time around and the BOJ’s decision to hold saw JPY weakening heavily. Against this backdrop, traders had been expecting that the BOJ would take this opportunity to announce a surprise rate hike alongside QT to strengthen the impact on JPY.

Mixed BOJ Expectations

However, on the back of the sharp pullback in USDJPY, expectations are now more mixed. While a reduction in bond purchases is still widely expected, some players think the BOJ will hold off from hiking rates at this juncture. The risk, however, is that on the back of rate-hike chatter, simply announcing QT might prove disappointing to the market, seeing JPY come under fresh selling pressure. However, if the BOJ does push ahead with double tightening (rate hike and QT) this should see USDJPY take another leg lower near-term with the potential for continued selling through the summer if the Fed signals a likely September cut when it meets next week also.

Technical Views

USDJPY

The sell off in USDJPY has seen the market breaking down below the bull channel lows and below the 158.28 level. With price since failing at a retest of this zone, the focus is now on a fresh push lower and a test of the 154.74 level next, in line with bearish momentum studies readings.