USD/JPY Bears Ready to Reemerge Following BoJ Decision Tomorrow: How to Trade It
With the Bank of Japan being the last major central bank decision left for this year and the last important macro releases of the year to come this week, the USD/JPY is the featured currency pair of the week.
Ahead of the BoJ’s policy decision, we are witnessing a bit of an oversold bounce, which is not a major surprise by any means.
Indeed, the risks remain skewed to the downside, which means there is the potential for further weakness in USD/JPY once this phase of profit-taking abates.
Tracking bond yields lower, the USD/JPY has had a tough time in the last one and a half months.
The pair has dropped from a peak of 151.91 in mid-November, to a low so far of 140.95 last week. This is more than a 1,000-pip drop or about 7.2%, which is not insignificant by any means.
While it has bounced back in the last couple of trading sessions due to some “bargain hunting” amid oversold conditions, the downside may not be done just yet.
With the Fed pivoting to a more dovish stance, yields could fall even more in the days and – as we move into a new year – weeks ahead.
This should further reduce the appeal of the higher-yielding US dollar compared to some of the lower-yielding currencies, such as the Japanese yen.
So, the USD/JPY’s selling may not be over just yet, especially if the BoJ turns out to be more hawkish than expected.
The Bank of Japan is the last major central bank to announce its final monetary policy of the year on Tuesday after the FOMC, ECB, BoE, and SNB all kept their respective policies unchanged last week.
The BoJ has remained the only major bank not to tighten its policy at all, but the pressure is growing on it to end the era of negative rates.
Governor Kazuo Ueda’s recent comments have boosted expectations of a
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