Short USD/JPY – Rising Rate Cut Expectations and FX Intervention by the BoJ

I’m sticking to the idea of ​​short trades from Q4 2023. Although my Q4 idea worked out in the end, I still think there is a strong chance that USD/JPY will fall further in the new year. You may also want to read our top trade ideas for Q4 for more insights.

USD/JPY remained high in the first half of the fourth quarter of 2023, but eventually fell from around the 2022 high. The selling momentum increased as talk of the Bank of Japan’s policy change increased towards the end of November, but I personally canceled it out, as evidenced immediately after the December 19th Bank of Japan meeting. they will.

Despite what the Bank of Japan said at its December meeting, I fully expect these expectations to increase in the first quarter of 2024. I believe that Bank of Japan Governor Kazuo Ueda is working diligently and will ultimately achieve the shift in monetary policy that the market expects. Even if this doesn’t materialize in Q1, I think market expectations and the Bank of Japan will keep USD/JPY on the back foot. As Governor Ueda has emphasized many times, the key indicator to monitor in the first quarter will be wage growth. Sustained wage increases that outpace inflation are likely to be a precursor to policy change, and there is also potential market expectation for policy change.

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Meanwhile, the US Federal Reserve has already said it expects to cut interest rates by 75 basis points in 2024. But timing is what’s driving the market right now, and it’s likely to continue with each high-impact data release. we. I think inflation will fall or remain close to current levels, but the main risks are geopolitical risks that could hit supply chains again. This could lead to stubborn inflationary pressures, delaying the Fed’s rate cut in 2024 and providing some support to the US dollar. Overall, we continue to see a weak USD in Q1, which could favor my short trade idea in USDJPY.

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USD/JPY technical analysis

Looking at the technical situation, the stock has now moved higher following the recent decline and is currently trading between key support and resistance levels at 142.00 and 145.00 respectively. Given the significant decline since the high came just short of the 152.00 handle, we would ideally prefer a deeper decline before looking for potential short opportunities.

USD/JPY weekly chart

Source: TradingView, created by Zain Vawda

Let’s zoom in on the daily chart to detail some key areas to focus on potential short sales. I look at the 146.50 area as a potential area to short, but an area that may offer a better risk-to-reward opportunity would be a retest of the 50-day and 100-day moving averages. There is a possibility.

Another sign that might pull the trigger is a potential death cross pattern if the 50-day moving average is about to break below the 100-day moving average. If USDJPY rises above these levels, the 150.00 level will be the focus and the only thing that would invalidate my bias at this stage would be a breakout of the previous high at the 152.00 handle. Sho.

USD/JPY daily chart

Source: TradingView, created by Zain Vawda

Support level:

• 142.00
• 140.00 (psychological level)
• 138.70
• 135.00

Resistance level:

• 146.50
• 147.50
• 150.00 (psychological level)
• 152.00 (highest price in 2022)