JPY weakens with BoJ nominee Ueda still dovish
- Ueda says the BoJ must maintain ultra-low interest rates: The prospective next Bank of Japan Governor is in no rush to change dovish monetary policy.
- Major bond yields ease lower, with major markets mixed: There is a hint of JPY underperformance amid USD strength on major forex today.
- Equities are mixed: European indices edge higher but the move will likely be constrained as US futures have tailed lower overnight.
- Precious metals lower, oil supported: Moves on commodities show gold and silver falling over again, although oil is finding support.
BoJ hopeful Ueda toes the dovish line
The parliamentary hearings to confirm the nomination of the next Bank of Japan governor took place today. The prospective incoming governor, Kazuo Ueda, has held a dovish line. However, he did discuss potential changes to yield curve control.
Here are the highlights:
- Ueda was cautious about changing policy too soon.
- Ueda said the reaction to inflation should come if price rises are due to demand-driven issues. Currently, the increase in inflation looks to be supply driven by rising raw material import costs. This suggests there will be no imminent reaction to rising inflation.
- Current monetary policy (interest rate targets and the negative short-term rate) is appropriate.
YCC could change soon
One of the key takeaways was that there could be some changes to the yield curve control (YCC) on the way. Currently, the BoJ targets +0.50% on the 10-year Japanese Government Bond yield.
With the BoJ targeting the 10-year yield, this has been damaging the JGB market functionality. The BoJ basically runs the whole JGB market.
In a bid to free up the market, Ueda may look to change this to focus more on shorter-dated bonds, such as the 5-year.
Markets are taking this as dovish, for now
Ueda has tried to portray himself as the continuity candidate. Markets are taking this as being dovish.
There may be some tweaks to the functionality of YCC, but there are no big hawkish moves likely in the near to medium term.
JGB yields fell slightly, with other major economy bond yields also dropping marginally.
There has been a mixed reaction in other major markets to this:
- JPY is weakening slightly, although there is little decisive selling pressure.
- The USD holds some marginal outperformance on major forex.
- European indices are higher, but the move is likely to be restrained as US futures have moved lower overnight.
- There are mixed moves on precious metals.
JPY remains near term corrective
JPY has been one of the weakest major currencies in the past month. This is a trend that does not look likely to change in the near term.
The pair has been pulling higher since the beginning of February. This move has stalled in recent sessions, but there is little sign of a reversal yet.
Today’s intraday rebound to trade around session highs currently leaves a positive candle.
- The 21-day moving average (an excellent gauge in recent months) is moving higher and is supportive around 132.30.
- The daily RSI is in a positive configuration in the low 60s.
This suggests that weakness remains a chance to buy.
A decisive close above 134.77 resistance would open a move towards the next resistance at 138.15.
There is good breakout support at 132.90 (just above the 21 day ma) for any near-term unwinding moves. Below the higher low at 129.80 turns the market bearish again.
Support and resistance levels for USD/JPY, Brent Crude Oil, and more
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