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USD/JPY correction: Yen rally continues on talk of stimulus withdrawal

By Adrian Holliday

13:22, 1 December 2022

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In this article:
130.193 USD
0.424 +0.330%
1.23835 USD
-0.00107 -0.090%
0.92277 USD
0.00179 +0.190%
1.08965 USD
0.00306 +0.280%
US Dollar Index
101.5151 USD
-0.047 -0.050%

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Is a near-term exit from ultra-loose policy on the cards for the BOJ?
Currency trader gestures behind Japanese and US flags at the Tokyo foreign currency market – Has a yen rally started for real? Photo: Getty

A sharpening Japanese yen, up 10% since October, may be a straggler behind GBP’s 16%-plus gains in the same period, but is JPY’s rally enough to lift it back on the ‘safe haven’ podium, alongside near neighbour CHF?

What is your sentiment on USD/JPY?

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The yen rally is back – how long can it last?

Sanctuary status reclaim?

USD/JPY sank again this morning, down 1.1% helped by signalling from Bank of Japan (BOJ) policy member Asahi Noguchi that the BOJ might wind in its stimulus marathon, under certain very tight conditions.

Should wages climb with trend inflation – think wage and services pressures – then the BOJ could respond. It’s still a big If.

"Trend inflation hasn't reached 2% yet. But if there's certainty that level will be met, it won't be surprising for the BOJ to shift monetary policy," Reuters reported Noguchi as saying at a news conference. 

FX strategist and finance consultant at Keirstone, Francis Fabrizi 

  • “USD/JPY has increased its bearish momentum after falling from 140.600 yesterday and breaking below the ascending trendline seen on the weekly timeframe.”
  • “This morning it is attempting to reach the 134.650 support level. If it is successful in dropping below this level, 132.000 will be the next target level, indicating the end to the current bullish trend.”
  • “If price is unable to break and hold below 134.650, I believe we will see a pullback towards 138.000.”

Service and wage pressures are yet to see a bump. Meanwhile the prevailing BOJ orthodoxy remains: Governor Haruhiko Kuroda is deeply resistant to pull stimulus measures until limping domestic demand and wage growth meaningfully climbs.

Capital fx market specialist Piero Cingari says stretched levels in the USD/JPY daily chart are clear enough. “The RSI is detecting oversold once more, and the 200-day moving average is only 1.5% below current levels.” 

US data dependent

A positive dollar surprise – a good Non-farm payrolls or higher-than-expected CPI inflation on December 13 – “might halt the USD/JPY downturn and spark a reversal” however.

The yen’s significant strengthening is consistent with investor expectations for Fed rate rises in December. A recession-like scenario in 2023, Cingari adds, is priced by the Treasury yield curve: the 10-year vs 2-year spread remains sharply inverted (-70 basis points), at levels, in fact, last seen in 1981. 

Hence the market’s caution: can the Fed’s really maintain higher rates for longer?

External news dominates, still 

The yen has had extra support from investors fleeing riskier assets as China Covid policy anxiety rises. Yet more JPY caution hangs at the side: Japanese retail sales growth slumped from 4.8% to 4.3% in October.


0.71 Price
-0.320% 1D Chg, %
Long position overnight fee -0.0056%
Short position overnight fee 0.0010%
Overnight fee time 22:00 (UTC)
Spread 0.00006


1.09 Price
+0.280% 1D Chg, %
Long position overnight fee -0.0082%
Short position overnight fee 0.0025%
Overnight fee time 22:00 (UTC)
Spread 0.00006


1.24 Price
-0.090% 1D Chg, %
Long position overnight fee -0.0039%
Short position overnight fee 0.0004%
Overnight fee time 22:00 (UTC)
Spread 0.00013


161.23 Price
+0.210% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.030

Japan’s third-quarter GDP reading will be out next week but Iris Pang, ING chief economist, Greater China, expects no change from its initial forecast. 

“We expect the -0.3% quarter-on-quarter seasonally-adjusted preliminary forecast to hold.”

Until economic growth starts to get going then tightening, or stimulus withdrawal, looks some time off. The yen has strengthened but so has the geopolitical risk and related newsflow. 

For example, Japan's November manufacturing activity actually contracted for the first time in almost two years, according to the just-released au Jibun Bank Japan Manufacturing Purchasing Managers' Index, down to 49.0 in November from October's 50.7 final reading.

Stealth support

The yen’s fall still remains immense. Valued at around 104 to the dollar at the start of 2021, the BOJ’s options are still limited. In late September the Japanese government did intervene, buying yen for the first time in more than 20 years. 

But the dollar too has wilted against a basket of other currencies and USD really does need strong NFP numbers – tomorrow – if the buck’s reverse is to be stalled.

Overnight dovish words also from the Fed’s Jerome Powell may mean new USD/JPY headwinds are here to stay – deep into 2023, possibly. For now, the rally's on.

Major pair gusts since October

  • USD/JPY - Y152 to Y136 – a 10.5% fall
  • GBP/USD - $1.0384 to $1.2100 – a 16.5% rise
  • EUR/USD - $0.9535 to $1.0445 – a 9.5% rise


Around 1.30pm DXY was 0.4% lower at 104.75; EUR/USD was 0.77% up at 1.0493 while GBP/USD had surged 1.25% higher to 1.2214; USD/JPY was 1.4% down at 136.08.

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
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