After two months of a relentless rout in the Yen, the Japanese currency is finally finding some stable ground.
The core of the current reversal lies in the clash between the administration’s fiscal policy and the central bank’s monetary response: fiscal recklessness has finally been met with monetary soundness.
Prime Minister Takaichi has been pushing to implement massive stimulus packages, while also pressuring the Bank of Japan to keep rates low to support these projects.
Still, Markets don’t get by the “cheap money” concept, which has led to a precipitous 5% to 8% move in the JPY against most majors since the beginning of October.
To balance things out, a round of increasingly hawkish tones from Bank of Japan Governor Kazuo Ueda has reversed the course over the past few weeks, winning his first showdown against Takaichi – as provided by a Reuters Headline.
Ueda confirmed overnight that current policy remains “accommodative” even after recent adjustments, underscoring the necessity of a planned exit from ultra-loose policy – The next BoJ Meeting is on December 19.
The Central Bank is actively working to narrow its estimate of the neutral rate (the level that is neither stimulative nor restrictive).
This rhetoric has created a strong market expectation for a December rate hike, supplemented by strong Japanese Inflation reports.
Complemented by some renewed weakness in the US Dollar, the Yen’s resurgence has led to a top being found in USD/JPY, which has plunged more than 2% off its November highs.
Let’s examine the charts to see if technicals suggest a definite top or a temporary resistance.
