Yen pairs, like the USD-JPY, are dropping below key support levels across the board. Blame is attributed to talking heads from Japan’s Ministry of Finance (MoF) and the Bank of Japan (BOJ). There is growing anticipation of a hawkish pivot from the BOJ, hinting at a possible policy shift in the future.
The spring wage negotiations are at the heart of the matter, with reports suggesting a growing consensus among BOJ policymakers toward abandoning negative rates. With wage data expected on March 13, this prelude to the BOJ’s meeting on March 19 could provide clues for FX traders.
Ending Negative Yields Will Have a Huge Impact
For FX markets, a move away from negative rates would have a huge impact on the broader currency market. A revamped quantitative monetary framework and a re-evaluation of yield curve control measures could hammer Yen carry trades depending on how aggressive the BOJ is.
While the short-term price action appears bullish for the Japanese Yen Index (JXY) and bearish for other Yen pairs, traders are likely selling the rumor. However, that doesn’t mean you should expect a stronger Yen. One only has to look at the JXY to see how far the Yen would need to move to generate any substantial and meaningful reversal.
For those new to how the Yen moves, over the past few years, there’s been an increase in comments from bigwigs at the Bank of Japan and Japan’s Ministry of Finance to make public comments amounting to: “Don’t test us, we’ll do something.”
