Japanese yen surges on hawkish BoJ

The Japanese yen has posted massive gains on Wednesday. In the North American session, USD/JPY is trading at 146.94, down 0.96%.

Yen rises on Ueda’s hawkish comments

The Bank of Japan didn’t have any surprises up its sleeve at yesterday’s meeting. The central bank kept interest rates at -0.1% and maintained yield curve control for 10-year government bonds at an upper limit of 1% as a reference. The BoJ lowered its core inflation forecast for fiscal 2024 to 2.4%, compared to 2.8% in the October forecast.

What was of more interest to investors were comments from BoJ Governor Ueda at a press conference after the meeting. Ueda said that the “prospect of higher wages” had led to higher service prices and Japan was moving closer to sustainably reaching the BoJ’s target of 2% inflation. Ueda said he would review policy if the wage-inflation cycle continued to rise.

Ueda’s comments may not have been a ringing endorsement of a shift in policy, but nonetheless reflect that change is afoot at the BoJ, and the yen has soared today in response.

A key piece to the rate path puzzle may be the national wage talks which begin in March. Ueda has long insisted that higher wages would be evidence of sustainable inflation. If employees win wage concessions from the major companies as expected, it could be the catalyst for the BoJ to tighten policy at the April or June meetings.

The US releases services and manufacturing PMIs later today. Manufacturing has been deep in the doldrums, with the PMI posting only one gain in the past 15 months. The January PMI is expected to stay unchanged at 47.9. The services sector is in better shape and has posted 13 straight gains, although many of those readings have barely been above the neutral 50 level and point to stagnation. The consensus estimate is 51.0, down slightly from the 51.4 reading in December.

The US releases first-estimate GDP on Thursday. The consensus estimate stands at 2.0%, which follows a sparkling 4.9% gain in the third quarter, which was the highest growth rate since Q4 2021.

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USD/JPY Technical

• USD/JPY is testing support at 147.34, followed by support at 146.31
• There is resistance at 148.02 and 149.02

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