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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Market update: historic rate rise on track despite recession, USD/JPY contained

As Japan faces recession, markets remain optimistic about a historic interest rate hike by the Bank of Japan in April, despite recent inflation trends and sharp increases in yen short positions amidst FX intervention warnings.

Source: Bloomberg

Markets anticipate April for potential rate hike

Markets have remained unfazed by Japan's recent entry into a recession, continuing to signal a high likelihood that the Bank of Japan will opt to increase interest rates by 0.1% in an effort to exit its prolonged negative interest rate policy.

Source: Refinitiv

The Bank's conditions for this significant hike include establishing a "virtuous relationship" between wages and prices. Inflation has stayed above the 2% target for more than a year, although it has decreased in the latest two reports, raising questions about the sustainability of price pressures above the 2% target.

Wage negotiations are in progress, expected to conclude by mid-March. This is the foundation for market speculation that the April meeting will bring the crucial rate hike.

CoT report indicates significant increase in yen shorts despite FX intervention warnings

Recent CoT data shows a surge in yen short positions, contradicting last week's warnings from Japan's principal currency official, Kanda, and the Bank of Japan's Deputy Governor, Shun’ichi Suzuki. Both officials have voiced their concerns over sharp and volatile FX movements (yen depreciation), with Kanda even suggesting FX intervention as a potential measure.

Positioning via Commitment of Traders Report (includes data up to 13 Feb)

Source: TradingView

USD/JPY cautiously maintains the 150 level

Despite warnings of FX intervention, USD/JPY continues to hold the 150 level. Indeed, current price action is creating a pennant-like formation, indicating a possible bullish continuation under normal market conditions. However, the potential for intervention poses a significant risk, making upward movements a gamble with a low risk-to-reward ratio, as historical FX interventions have typically caused the yen to shift by approximately 500 pips, mostly downward.

Should bulls manage to push prices towards 146.50, it may prompt scrutiny from the finance ministry, potentially leading to requests for FX quotes from banks. This approach has historically preceded large-scale yen purchases. Support is currently at 146.50, with resistance noted at the recent peak of 150.88, followed again by 146.50.

USD/JPY daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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