USD/JPY Nearly 5% Up in February, Can Ueda's Testimony Change its Course?

The yen spiked 1.40% after BOJ Governor nominee Kazuo Ueda spoke at the lower house on Friday and flattened out during his second testimony at the upper house earlier in the Asian session. Do his remarks change the course for USD/JPY or the previous narrative?

Both Testimonies Reveal Same Message

Broadly speaking, Ueda's testimony before the parliament during Asia was in line with expectations. Traders might have hoped for a strong signal that the BOJ would change policy under the new governor, but Ueda had to reassure the government and politicians responsible for confirming him in the post that he won't rock the boat so early at his new job. And he made sure of that during his first testimony.

The initial reaction on Friday saw the yen spike 1.40% as Ueda showed firm support for the BOJ's path, which he reaffirmed earlier today. Notably, an important portion of the USDJPY's move on Friday was aided by dollar strength, as the greenback came close to its seven-week high.

Anything New from the Comments for Traders?

In essence, Ueda's comments backed the current policy but left the door open for normalisation, provided setout milestones on inflation are met. His stance is seen as rather cautious, sticking to the existing framework to avoid a shock to the system but not committing to keeping rates extremely low forever. By emphasising the uncertainties around the outlook for the Japanese economy, he was able to take a more neutral stance and not commit to any major changes. 

One change there was a lot of speculation about, as it's seen as the first step towards tightening, was a potential yield curve control (YCC) modification. Ueda wouldn't comment on a change but did admit that shortening the length of bonds targeted might be an option. Overall, the view was that Ueda's comments were slightly dovish but couched in the understanding that he was essentially conducting a job interview. The government has a majority in parliament, so the nominee is widely expected to be confirmed. But he wouldn't be expected to make any major announcements during the process.

USD/JPY

USD/JPY seems on its way to 140.00, confirmed by the measured move projection of the head-and-shoulders neck-to-head length. Bulls must regain control of 137.87 in the short term to support the bullish case, while keeping bias positive above 135.00. Losing the near-term base might pave the way towards 132.90, where probabilities for more upside will change dramatically.

Key Takeaways

USD/JPY has soared nearly 5% in February, with the initial reaction to Kazuo Ueda's testimony before parliament on Friday leading to the yen weakening and the secondary during his second testimony reaffirming the stance. His comments during Asia repeated the rhetoric, and the pair flattened out. The nominee did leave the door open for normalisation, provided setout milestones on inflation are met and admitted that shortening the length of bonds targeted might be an option.