Following the Bank of Japan's (BoJ) unanimous decision to maintain interest rates at -0.1% and stick to its yield curve control policy framework, which caps the 10-year Japanese government bond yield at 1%, yen traders are looking to other factors for direction. The central bank's decision indicated that ultra-loose policy conditions will persist, disappointing those who had hoped for hints of change. This led to a decline in the yen's value. The yen's future trajectory may depend on Japan's national inflation data for November, scheduled for release during the Asian session on Friday. The core CPI is expected to have decreased to 2.5% year-on-year from 2.8%. Recent Tokyo CPI data showed notable slowdowns in both headline and core consumer prices, supporting the forecast for a decline in the national core CPI.
However, a slowdown in inflation doesn't necessarily mean that the BoJ will abandon the idea of raising interest rates in the coming months, as both metrics are still above the bank's 2% target. The BoJ is closely monitoring wage growth, and a significant acceleration in wages could be the signal for policymakers to move interest rates out of negative territory.
April, after next year's spring wage negotiations, seems like a plausible time for such a move. In October, Japan's umbrella labor union, Rengo, announced its demand for at least a 5% wage hike, which could push real wage growth into positive territory. If the market expectations of the Fed cutting interest rates by approximately 150 basis points next year hold true, this development may allow the yen to continue its uptrend against the US dollar.
The Summary of Opinions from next week's meeting, scheduled for Wednesday, could provide more clarity on the BoJ's intentions. While Governor Ueda didn't provide a clear signal on when the bank might exit negative rates, investors may hope to gain further insight into the BoJ's stance from the summary. If the December summary reveals fresh discussions about exiting negative rates, the yen could experience a significant rebound.
In terms of technical analysis, the dollar/yen pair remains below the downtrend line that started on November 13. Despite a recent recovery, the price was halted near the 144.00/80 zone, falling below the 200-day exponential moving average afterward. This suggests that bears may regain control, potentially targeting a test near the 141.50 level. A break lower could confirm a lower low and open the door for further declines toward the key support area around 138.00.
On the upside, a break above 146.50 could neutralize the outlook. A move indicating that bulls are firmly in control might require a break above 148.75, confirming the pair's return above the previous uptrend line established on March 24.
