BoJ Speculation Turns JPY Bid

USD/JPY tests Y149.40 before bouncing to Y149.55 after JiJi reported that some BoJ board members are likely to say lifting negative interest rates is reasonable at the March meeting. Note that the article only points to “some” not most/a majority.

• OIS markets currently price just a ~30% chance of such an outcome, with ~90% chances of an exit from NIRP priced through the end of the June meeting.
• Japan’s multi-decade battle to generate inflation has been well-documented, although the inflationary pressures seen over the last couple of years have allowed inflation to move above target.
• The Bank do not view this move as sustainable, only providing tweaks to YCC settings thus far.
• Many have stressed that the BoJ runs the risk of missing its hiking window if it does not act soon.
• Initial support in USD/JPY comes in at the Feb 29 low (149.21), followed by the 50-day EMA. (Y148.51).
• The trend in the pair remains bullish and the pair seems to have formed a bull flag. A break of the 50-day EMA is required to signal a top.