Japan 225

USD/JPY upside looks limited in the near-term, hindered by narrowing interest rate differentials and perceived increased risk of Bank of Japan intervention. The stronger yen may add to growing downside momentum in the Nikkei 225, putting two of the strongest market trends in 2024 under threat.

Focusing on whether the Bank of Japan (BOJ) will scrap negative interest rates should be low on the list of priorities for USD/JPY traders to consider right now. It’s not as important as it’s portrayed to be, creating plenty of noise for an event that could pass without generating significant market volatility.

If there was ever a day for Japan’s Nikkei 225 to overcome its demons and take out the record high set in December 1989, few screen better than today. The ducks look to have lined up for bulls. If we can’t set a new peak, it may provide a subtle warning that the market has run too hard, too fast.

Bond yields, especially in the United States given the US dollar’s role as the global reserve currency, are perhaps more important to Japan than many other parts of the world.

Japan has received a raft of bullish economic news today, sending Japanese government bond yields higher while simultaneously placing downward pressure on USD/JPY and the Nikkei 225.

Japan’s Nikkei 225 and USD/JPY have been whipsawed following the BOJ January interest rate decision with policymakers providing few clues as to whether they’re likely to lift interest rates out of negative territory for the first time in nearly a decade later in the year.

USD/JPY has surged to fresh one-month highs, aided by a lift in US bond yields which widened interest rate differentials with Japan. Given the risk-off tone seen across broader markets, it’s clear the yen is no longer the safe haven play it once was.

Recent adoptees of a bullish Nikkei stance are facing their first real test with a distinct risk-off tone settling in across the Asian region, seeing the index reverse slightly after hitting fresh 34-year highs on Monday.

Speculation surrounding the future of the Bank of Japan’s (BoJ) yield curve control program continues to thwart attempts to push USD/JPY higher, combining with the threat of intervention from the BOJ to cap on rallies in the pair.

For USD/JPY and Nikkei 225, what the BOJ chooses to do near-term will likely be felt well into the future.

It’s been a turbulent 24 hours for USD/JPY and Nikkei 225 as traders attempt to digest the impact from the hot “supercore” inflation reading in the US released overnight on Thursday.

Should the BOJ fail to reach escape velocity from ultra-easy monetary policy settings, it will have implications for the Nikkei 225 and USD/JPY as we move towards 2024.

Nikkei 225 sits on a major support, making near-term price action potentially important for its longer-term trajectory.

Inflation rose to an 8-year high (or a 31-year high if we look past tax-hike impacts), yet its unlikely to see the BOJ shift from their ultra-dovish policy this week.

USD/CNH enjoyed its best day since the pandemic yesterday following China’s weak data, as Beijing seemingly to want to allow their currency to slide to help support the economy.

The reappointment of Fed Chair Powell two weeks ago was meant to be about keeping the status quo. A move that removed uncertainty, to allow risk assets to carry on their rally into year-end.