After assuming the role of Prime Minister of Japan, the newly elected Shigeru Ishiba surprised the markets with his speech on interest rates. Ishiba stated that he does not believe the environment is ready for an additional rate hike. USDJPY traders, particularly those betting on a bullish Yen due to the differing directions of the FED and BOJ, were caught off guard by the new prime minister’s remarks. While USDJPY initially reacted with an upward move, the long-term bond yield difference between the U.S. and Japan only showed a slight change so far.
Meanwhile, comments from Bank of England Governor Bailey, who mentioned the possibility of “a bit more aggressive rate cuts” in a Guardian interview, and Schnabel’s speech about the “increasing likelihood of inflation sustainably falling to the 2% target,” further weakened the GBP and EUR against the dollar. This gave a slight upward momentum to the dollar index, making the bullish Yen scenario seem even less likely, at least in the short term.
(USDJPY 4H Chart)
The wedge formation at the bottom for USDJPY has ended, signaling a potential short-term trend shift, and a new trend appears to be emerging. Currently, the newly forming trend channel is being tested to the upside. Although not particularly strong as of yet, it is approaching the 38.2% retracement level, and together, these factors could form a more significant resistance. If USDJPY fails to break above 148, a downward move may occur, but it could only present a buying opportunity unless a sharp drop to below 138.50 begin.
However, a move above 148 could signal something different. A sharp breakout, possibly supported by a strong U.S. jobs report and a more dovish BOJ, might prompt traders to re-enter carry trade opportunities, potentially pushing USDJPY to new highs. Tomorrow’s jobs report and any comments from BOJ members, especially Ueda, will be crucial for determining the short-term direction.
