March key rate hike in Japan may intensify USDJPY decline

The USDJPY currency pair started a sharp collapse this week, breaking down through the 150 level. At Thursday’s trading session, the downward movement is accelerating, most likely due to the mass closing of long positions of the bulls. The powerful strengthening of the yen against the dollar caught many traders by surprise, and the price may continue the current decline by inertia. The sellers may choose the level of 147.6 as the first stop for profit taking.


The trigger for today’s USDJPY decline was the news about negotiations on the wage level between Japanese companies and their employees. Japan’s largest labor unions announced their demands for a more substantial wage increase than last year. UA Zensen union members requested an average wage increase of 6.7%, while Rengo members requested a 4.5% increase. In 2023, those figures were less than 5.3 percent and 3.6 percent, respectively.


The first results of negotiations between trade unions and Japanese employers will be known on March 15. The meeting of the Bank of Japan will be held on March 19, and the regulator’s officials will have to react to the strengthening of pro-inflationary factors in the national economy. The possibility of raising the key rate was not denied by Yunko Nakagawa, a member of the Board of the Bank of Japan, who delivered a speech today. According to him, confidence in maintaining higher wage growth rates has strengthened considerably in recent months.


The March tightening of monetary policy in Japan is also supported by the management of the country’s largest bank MUFG. Hiroyuki Seki, head of global markets at MUFG, believes an earlier move to reverse the negative key rate is justified. It will give the regulator’s officials more time and flexibility before the next similar action. According to Seki, the BOJ rate should rise to at least 0.25% by October. And the regulator will not pay attention to monetary policy easing by the Fed and other central banks.


The nearest target of the bears on the daily chart of USDJPY is the 147.6 mark. Given the speed of the current movement, it is very likely to be reached by the end of this week.


Consider the following trading strategy:

Selling USDJPY at the current price. Take profit – 147.6. Stop loss – 149.2.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion

Other news