Chart of The Day – USD/JPY

The Japanese Yen strengthened Tuesday, pulling USD/JPY down from a three-week high near 151.00 as markets digest hawkish signals from the Bank of Japan’s January meeting minutes.

BoJ Signals Further Rate Hikes

Minutes from the BoJ’s January meeting revealed growing confidence among policymakers, with several members discussing conditions for future rate increases despite maintaining that “accommodative financial conditions would be maintained.” One member notably suggested rates should reach “around 1% in the second half of fiscal 2025,” while Sumitomo Mitsui’s head of markets delivered an even more hawkish prediction that rates could eventually hit 2%—a level unseen since 1993.

Policy Divergence Supports Yen

The contrast between the BoJ’s tightening bias and the Federal Reserve’s forecast of two rate cuts in 2025 is providing fundamental support for the yen. However, positive global risk sentiment—bolstered by hopes for less disruptive US tariffs, potential Russia-Ukraine peace, and Chinese stimulus—is limiting safe-haven currency gains.

Economic Outlook Mixed

Next week’s Tankan survey (April 1) is expected to show declining business sentiment among manufacturers, with economists projecting the headline index to fall to +12 from +14 in December. Governor Ueda maintains a cautious approach to unwinding stimulus, stating the bank “still needs time to consider what to do with ETF holdings” while not ruling out the possibility of selling government bonds as normalization gradually proceeds.

USDJPY (D1 Interval)

USD/JPY is currently trading near the 50-day EMA. Bulls may target the 38.2% Fibonacci retracement level, followed by the 151.6 level, where the 100-day and 200-day EMAs are converging. Bears, on the other hand, will look to retest the 23.6% Fibonacci retracement level, which aligns with the 30-day EMA. The RSI is in bullish divergence, forming higher lows, while the MACD is widening in bullish divergence.

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