The USD/JPY currency pair has seen a decline following comments from Bank of Japan (BoJ) officials that suggest a strong possibility of an interest rate hike during the upcoming Monetary Policy Committee (MPC) meeting on January 24. The pair was last trading at 155.82, according to FX analysts Frances Cheung and Christopher Wong from OCBC.
Pressure on Wage Growth Remains
A key development fueling expectations of a rate hike is a report indicating that BoJ officials believe there is a high chance of an interest rate increase next week, barring any major negative surprises from the U.S. administration. Earlier this week, BoJ Governor Ueda mentioned that a decision regarding a rate hike will be made at the upcoming meeting, and he expressed optimism regarding the momentum of wage increases.
Deputy Governor Himino also weighed in, stating that the MPC will consider whether to raise rates based on the economic outlook. He emphasized the challenge of timing monetary policy decisions, acknowledging that while difficult, it is essential to make the right judgment.
Cheung and Wong continue to anticipate a rate hike, noting that the data continues to support policy normalization, with persistent wage growth pressures and increasing services inflation.
Technical Outlook: Bearish Momentum
From a technical perspective, the daily momentum for USD/JPY is bearish, with the Relative Strength Index (RSI) showing a downward trend. Risks are skewed to the downside, with potential support levels at 154.80 (50-day moving average), 154.30 (23.6% Fibonacci retracement from September low to January high), and 152.80 (200-day moving average). Resistance is seen at 156.40 and 157.40 (21-day moving average).
In terms of tactical positioning, the analysts have suggested a short position on SGD/JPY, targeting a move lower towards 110, with an entry at 115.10 and a stop loss set at 117.12. The cross was last seen trading around the 114 level.
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