Japanese Yen, USD/JPY, US Dollar, Bank of Japan, Ueda, Kikyo, Nikkei 225 – Talking Points
- of JPY Stable today after dropping earlier in the week
- The new Governor of the Bank of Japan Financial policy
- Appointment gets approval from yen heavyweights who see tightening ahead
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How to trade USD/JPY
The Japanese Yen fell on Monday and Tuesday, with USD/JPY trading at 133.32, its highest level since early January.
The appointment of Kazuo Ueda as the new governor of the Bank of Japan (BoJ) on Tuesday came as a bit of a surprise.
His term begins on April 8, when incumbent Gov. Haruhiko Kuroda resigns after serving two five-year terms.
Little is known about Ueda’s approach to monetary policy and whether the current ultra-accommodative stance will be maintained.
The 71-year-old has been a bank director for several years and is now a professor at Kyoritsu University. Some commentators were skeptical that a scholar would be assigned to the role, but former Finance Minister Eisuke Sakakibara supported a positive view on Bloomberg TV.
Sakakibara, known as Yen during his tenure, said Ueda knew the bank’s structure and was likely to stabilize monetary policy initially.
He speculated that Ueda could raise interest rates in the fourth quarter, but that would depend on the state of the Japanese economy and whether inflation stays around 2%, as he expected.
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Regarding the issue of Yield Curve Control (YCC), Mr Yen said he was not too concerned about holding financial assets and that the sale of such assets was unlikely at this stage.
There is speculation that a final tightening by the Bank of Japan could see a significant repatriation of funds by Japanese investors.
As plausible as this may be, interest rates in other developed markets are hundreds of basis points higher. Given Japan’s relatively poor economic growth, the Bank of Japan will need to be very aggressive to reach these levels quickly.
This appears to risk dashing any hopes of recovery from the so-called ‘lost two decades’.
As such, the BOJ is eyeing tightening later this year, although an aggressive policy change may be some time away.
Nevertheless, USD/JPY could see a bumpy move until the market gets a firmer grip on the new governor’s intentions. If Japanese yields start to rise, it could have a considerable impact on the exchange rate.
USD/JPY technical analysis
Chart created with TradingView
— Written by DailyFX.com Strategist Daniel McCarthy
please contact daniel @DanMcCathyFX on Twitter