The Bank of Japan is one step closer to ending negative rates, as the market’s expectation of it ending in April rose above a 50% probability. The BOJ did not change the current ultraloose policy today and cut its inflation forecast for the fiscal year to 2.4% from 2.8%. Despite that, the BOJ stated that it sees a higher certainty of reaching the inflation target, and underlying inflation is likely to increase gradually towards the 2% target. At the press conference, Chair Ueda saw positive developments in the wage-price cycle and signaled the possible end of the negative rate, although he avoided discussing the possible timing. Ueda also mentioned seeing positive developments in recent wage talks. As Ueda abandons its dovish stance, he reminds markets that increasing the rate before achieving the 2% target will raise deflation risks.
(EURJPY Daily Logarithmic Chart)
EURJPY fell with the tone change, as the 10-year bond yield and market pricing of the likelihood of an April rate hike increased. Now, the market sees above a 50% possibility of ending negative rates in April, and if not, a 100% possibility at the June meeting. Despite the tone change, Ueda is avoiding giving a possible timeframe for a hike, and the falling inflation forecast of the BOJ hints that the BOJ is still uncertain that the price target will be reached at the first half. On top of that, despite the market expectation of further hikes in 2024 after ending the negative rates, might be a bit much as Ueda hinted that after the policy change, the BOJ will keep the policy loose for the time being.
With all the information from the BOJ, the 159-159.50 support zone’s importance increased for EURJPY. It includes a very strong former horizontal resistance with the 50 and 100 day moving averages. If it holds, down moves could stay limited for now. But the weak Eurozone economic activity and bullish stance of JPY traders cause a downward break, the next target will be the 200-day moving average, currently at 156.22, which is also supported by the green trendline. Over the medium to long term, the uptrend is still in effect, and the price is near the center of the trend channel with a lot of ground to move in either way.
