USD/JPY advances above solid resistance amid BoJ rumors

The Japanese yen slumped on Monday, losing half a percent during the Frankfurt session as investors sold the currency following some dovish news leaked from the Bank of Japan.

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According to a report, Bank of Japan Deputy Governor Masayoshi Amamiya, an advocate of ultra-loose monetary policy, will become the bank’s new president.

The Nikkei newspaper claimed that government sources indicated that Amamiya was in the running to succeed incumbent governor Haruhiko Kuroda later this year, with an official announcement expected later this month. Kuroda’s tenure ends in April.

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The central bank has rejected rumors of a new policy adjustment (tightening) by retaining its ultra-low interest rates and maintaining its yield control strategy.

BOJ Governor Haruhiko Kuroda reaffirmed that the 2% inflation objective must be sustained, backed by solid wage growth. Currently, Japanese consumer inflation is at a 40-year high of 4%, beyond the BOJ’s yearly objective of 2%. In addition, the inflation development and a significant downturn in the nation’s industrial sector are anticipated to dampen economic growth in the following months.

US jobs market shows resilience

Meanwhile, in the US, Nonfarm Payrolls (NFP) in the United States increased by 571,000 in January, considerably above the market’s projection of 185,000 by a significant margin. Even though the yearly wage increase, as indicated by Average Hourly Earnings, fell to 4.4% in January, December’s estimate of 4.6% was revised up to 4.9%. The US Dollar rocketed higher in response to the strong NFP report, as the DXY ended its three-week losing streak with a 1% weekly gain.

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A possible move down in USD/JPY over the next several weeks will depend mainly on the prospect of a change in BoJ policy. Still, other medium-term drivers (such as an improving current account balance) should also be contributing in the background.

“With the JPY still undervalued (based on its real effective exchange rate) and residents underhedged, we think the ingredients are in place for a renewed move lower in USD/JPY.” economists at HSBC believe. 

Technically speaking, USD/JPY is jumping up and down near the critical support zone of 132. However, as long as it trades above it, the short-term outlook seems bullish, targeting the 200-day moving average (the blue line) near 136.75.