Naoki Tamura, the most hawkish member of the Bank of Japan’s (BOJ) policy board, stated that it is necessary to raise interest rates twice or more by early next year to curb upside risks to prices.
During a speech to local business leaders in Nagano Prefecture, central Japan, on Thursday, Tamura said: *”Short-term interest rates should reach 1% in the second half of fiscal 2025, up from the current 0.5%. I believe the central bank needs to raise this rate in a timely and gradual manner to address the increasing likelihood of achieving our price stability target.”*
Although Tamura is the leading advocate for rate hikes within the BOJ board, his remarks are likely to further fuel market speculation about additional rate increases. This comes a day after solid wage data boosted the yen under the same assumption.
Following Tamura’s comments, the yen strengthened to 151.82 against the dollar, up from around 152.30 earlier, marking a two-month high.
Christopher Wong, a strategist at OCBC, noted: *”His comments, along with yesterday’s stronger wage data, have bolstered confidence in the BOJ’s further policy normalization.”* Wong added that the policy divergence between the Federal Reserve and the BOJ leaves room for further yen strength.
According to data from the Depository Trust & Clearing Corporation (DTCC), market interest in the yen surged on Wednesday, making it the most traded currency against the dollar. Yen option volumes nearly doubled compared to this year’s previous peak, as better-than-expected Japanese wage data strengthened the case for continued BOJ rate hikes. The yen rose against all major currencies.
Sagar Sambrani, a senior FX options trader at Nomura International in London, said: *”This week, we have been recommending medium-term USD/JPY downside trades targeting the 147-150 range, and our global franchise has shown significant interest in these ideas.”* USD/JPY closed at 152.61 on Wednesday after hitting a low of 152.12.
On the other hand, overnight US economic data was mixed. While ADP employment growth of 183,000 exceeded expectations, the market showed little reaction to the headline number. However, the subsequent ISM non-manufacturing index unexpectedly declined, putting pressure on the dollar.
The US ISM non-manufacturing PMI for January came in at 52.8, below the forecast of 54.2.
Antony Foster, head of G10 spot trading at Nomura International in London, commented: *”Dollar longs have indeed been significantly reduced, similar to the events of January 20. After the initial tariff shock, long positions were rebuilt, but the delay in tariff implementation forced many dollar longs to unwind.”*
Technical Analysis
Gold:
Driven by the gradual unwinding of dollar longs, gold surged further. Yesterday, we deployed three long positions on the plugin, with the blue momentum breakout entry successfully triggered, yielding a profit of 29 dollars from 2854 to 2883, achieving nearly a 5:1 risk-reward ratio. Today, we continue to offer three buying opportunities, as shown in the chart. For detailed levels, please consult the plugin.
To experience the same plugin shown in the chart, contact V: Hana-fgfg
Nasdaq (NQ):
Yesterday, the Nasdaq initially fell before rebounding. We initiated a sell-stop order in the blue zone, securing nearly a 2:1 risk-reward ratio. Prices then rebounded to around 21,800, where momentum has since slowed. Today, we recommend waiting for a pullback to the green demand zone for buying or a breakout above the yellow zone for selling. For detailed levels, please consult the plugin.
To experience the same plugin shown in the chart, contact V: Hana-fgfg
USD/JPY:
Due to the possibility of consecutive BOJ rate hikes to 1%, the yen has shown strong performance recently. USD/JPY has continued to decline, touching below 152. Today, prices may see a slight rebound to test liquidity in the 153.00/20 zone, but further downside attempts are likely afterward. We recommend waiting for liquidity to clear before initiating sell-stop orders in the yellow zone. For detailed levels, please consult the plugin.
To experience the same plugin shown in the chart, contact V: Hana-fgfg
Key Economic Data and Events to Watch Today:
– 18:00 Eurozone December Retail Sales
– 20:00 UK Official Bank Rate
– 21:30 US Weekly Initial Jobless Claims (in thousands)
