Bank of Japan signals rate hike supporting yen, USD/JPY maintains range-bound fluctuations

Huitong Finance APP News — On Wednesday during Asian trading hours, the US dollar weakened against the Japanese yen, falling back to around 158.70 after a slight increase in the previous trading day. The main driver of this correction was the latest meeting minutes released by the Bank of Japan, which signaled a hawkish stance, prompting the market to reassess the monetary policy outlook. According to the minutes, several policymakers noted that although rising interest rates might somewhat suppress consumption, the overall financial system remains resilient. Additionally, with real interest rates still deeply negative, further rate hikes are considered appropriate if economic growth and inflation meet expectations. This statement reinforced market confidence that the Bank of Japan will gradually exit its easing policy.

Furthermore, the policy stance emphasizes flexibility, meaning each meeting will decide policy based on data rather than a preset rate hike path. This “data-dependent” approach introduces uncertainty about future policy timing but also provides ongoing trading opportunities. From an economic fundamentals perspective, recent Japanese economic data have shown signs of weakening. The composite Purchasing Managers’ Index (PMI) has declined, and core inflation has cooled due to energy subsidies, with core CPI falling below target levels for the first time in about four years. However, corporate cost pressures remain high, indicating inflation has not fully subsided. External analysts, such as Danske Bank’s research team, believe that despite short-term weakness, the BOJ still has room to raise rates and expect the next policy move could occur in April, with current market pricing indicating about a 50% chance of a rate hike then. Meanwhile, analysis from Brown Brothers Harriman points out that although inflation eased in February, underlying price pressures remain above the BOJ’s forecast path for fiscal 2026. Notably, Japan’s spring wage negotiations are a key variable; sustained wage growth would support consumption and help sustain inflation, providing a stronger foundation for policy tightening. If the wage-inflation positive cycle is confirmed, it could drive the yen’s medium-term appreciation.

Market-wise, USD/JPY remains volatile at high levels. On one hand, the resilience of the US economy and high interest rates support the dollar; on the other hand, expectations of policy normalization in Japan are gradually rising, providing a floor for the yen. The interplay of these forces results in a lack of clear short-term trend. Technical analysis shows that on daily charts, USD/JPY has repeatedly faced resistance around 159, indicating strong selling pressure in that zone. Momentum indicators are showing signs of weakening, suggesting upward momentum is diminishing. The current price remains in a high range, with 159.00 acting as a key resistance. If it cannot be broken convincingly, the pair may consolidate or even retrace. On the 4-hour chart, the short-term trend appears sideways, with highs gradually declining, indicating waning upward momentum, while support levels are rising, forming a converging pattern. Around 158.00 is a critical support; a break below could trigger further declines to 156–157, while a move back above 159 could target higher levels.

Overall, USD/JPY is likely to stay within the 158–159 range, awaiting further signals from the BOJ and US macroeconomic data to guide the next move.

Editor’s Summary

The current correction in USD/JPY is essentially a valuation adjustment driven by improved expectations of the BOJ’s policy stance. With real interest rates still negative, room for rate hikes remains, and wage growth is a key variable influencing policy pace. In the short term, the pair is likely to remain high and volatile, but if expectations for a April rate hike strengthen further, the yen could see a phase of recovery. The medium-term trend will depend on the pace of Japan’s policy normalization and the US interest rate trajectory.

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Editor: Guo Jian