USD/JPY falls on worst day in over one year

The USD/JPY combination is headed for its worst day in 13 months. All around, the Japanese Yen is strengthening against the FX market as a whole. The Yen’s rally on Thursday was triggered by BoJ Governor Ueda’s implied potential tightening. A broad-market rally for the Japanese Yen on Thursday sent the USD/JPY plunging more than four percent, setting up the pair for its worst trading day since November 2022.

The Bank of Japan (BoJ) Governor Kazuo Ueda hinted that additional policy tightening may be in the works, potentially ending the BoJ’s long-standing negative rate policy. As a result, the USD/JPY fell to its lowest bids since August below 142.00.

Governor of the Bank of Japan, Ueda, stated that the country will be facing “even more challenging” circumstances in 2024 and that the BoJ has “several options” regarding how it will target interest rates going forward.

Japan’s core inflation rate hit 2.9% in October, and Japanese inflation has exceeded the BoJ’s main inflation target rate for well over a year, and the BoJ itself doesn’t anticipate inflation receding below the central bank’s own 2% until sometime in 2025.

Japan’s Core Consumer Price Index (CPI) inflation has hit above the BoJ’s target band for 19 consecutive months. Markets are rapidly increasing their bets that the BoJ will finally be pushed off of their hyper-easy monetary policy perch sooner rather than later, on expectations that wages will begin to finally see moderate wage gains as Japanese workers and consumers grapple with inflation running much hotter for much longer than many expected, eclipsing long-running wage stagnation.

The BoJ next meets for another rate review on December 18 & 19, followed by a quarterly growth and inflation forecast review in late January. Investors will be keeping eyes glued closely to statements coming from the BoJ in the weeks to come as traders look for signs of more than just verbal movement from Japanese policymakers.