FX.co ★ Wiking | USD/JPY

The USD/JPY pair is strengthening and approaching 157.60 in the first hours of trading during today's Asian session. The Japanese Yen continues to weaken as market participants see no clear or hawkish direction from the Bank of Japan (BoJ) after it raised rates last week. Investors are awaiting the release of the preliminary US Purchasing Managers' Index (PMI) later today. Last week, the BoJ increased its policy rate by 25 basis points (bps) to 1.25%, the highest point since 1995. However, the decision was not unanimous – 7-2. Board members who voted against were Toichiro Asada and Ayano Sato. The outcome is seen as a cautionary message about difficulties that could arise when implementing further rate increases, which could negatively affect the Japanese Yen. When asked whether there could be back-to-back hikes or larger hikes, BoJ Governor Kazuo Ueda added that the central bank would not dismiss any of its policy options before board meetings. "As shown during Ueda's press conference, although hawkish tones have been heard, it is not enough to justify the overly hawkish expectations of the market," added Chidu Narayanan, head APAC Strategist at Wells Fargo. The forex market remains extremely vigilant about currency intervention by Japanese authorities to strengthen the Japanese Yen. According to an article in the Nikkei newspaper, Japanese authorities recently carried out a rate check. A rate check refers to when authorities request currency quotes from banks to assess market conditions. OCBC strategists note that the "BoJ's recent 7-2 vote split in favour of a rate hike may continue to weigh on the JPY in the near term as the split board would probably refrain from immediate currency action." Yet, they add that "the more important point is that the BoJ seems to be becoming increasingly determined to move towards higher rates." This, they say, "may ease fears that the BoJ is being left behind the curve." OCBC strategists note that the "BoJ's recent 7-2 vote split in favour of a rate hike may continue to weigh on the JPY in the near term as the split board would probably refrain from immediate currency action." Yet, they add that "the more important point is that the BoJ seems to be becoming increasingly determined to move towards higher rates." This, they say, "may ease fears that the BoJ is being left behind the curve." Collins gave a much more hawkish speech, with a rating of 8.1/10 from the FXS Speechtracker compared to the usual benchmark of 6.6/10, indicating a stronger commitment to recent policy decisions. By explicitly backing the recent interest-rate increase and pointing to a higher probability of persistently high inflation above 2%, Collins painted a picture of a policy focused on bringing prices back to normal, given the stronger labour market. The notion of a "somewhat more restrictive" federal funds rate implies a preference for higher rates, which is generally Dollar-positive and risky-asset-negative. The FXS Fed Sentiment Index increased by 0.53 to reach 150.49. This supports the view that the overall Fed communication environment remains hawkish and continues to trade above the 100 neutral level. Together with the high FXS Speechtracker index, this signals that Fed communications are increasingly moving towards restrictive measures as the only way to bring inflation back to target levels. On the daily chart, USD/JPY is trading in a wide consolidation zone, with price below the 100-day moving average but above the 20-day Bollinger SMA midline. This means the currency pair is trading within the trend line and the immediate support level in the Bollinger Bands, while the RSI stands at 53.01. Above, the first resistance is the 100-day MA at 159.55, followed by the top Bollinger Band at 160.85. From a downside perspective, the first support level is the middle Bollinger Band at 156.55, followed by key structural support at the bottom Bollinger Band at 152.25.