BoJ Rate Hike in Focus: USD/JPY, GBP/JPY Technical Analysis

• Markets are pricing in a less than 20% chance of a BoJ rate hike this Thursday, despite earlier expectations of a 70% probability.
• JPY weakness has resumed as rate hike expectations have fallen, potentially pushing the BoJ to act.
• USD/JPY shows strong bullish momentum, but a BoJ hike could lead to a significant decline.
•  A surprise rate hike by the BoJ could strengthen the JPY significantly, with more room for gains against the GBP than the USD.

Most Read: Markets Weekly Outlook – Will Fed Rate Cut and BoJ Decision Spur Volatility?

Bank of Japan: To hike or not?

The Bank of Japan (BoJ) is in the spotlight this week and looks to take center stage despite Central Bank meetings from the US and UK. The much anticipated normalization of policy from the BoJ may be upon us, hence all the interest in this week’s meeting. 

The BoJ have for months been touting a more aggressive shift in policy.  In 2024, the Bank of Japan have already made several changes to its monetary policy. Notably, in July, the BOJ increased its policy rate to around 0.25% while discontinuing its Quantitative and Qualitative Monetary Easing with Yield Curve Control policy framework.

Two weeks ago markets were pricing around a 70% probability of a 25bps hike by the BoJ. At the time I did think this was strange given the notoriously indecisive nature of the Central Bank. However, over the past two weeks, many reports have surfaced, leading the market to believe there’s less than a 20% chance the Bank of Japan will raise rates by 0.25% this Thursday.

Source: LSEG (click to enlarge).

The BoJ do have a tendency to spring a surprise when one least expects it. One of the key issues over the past few months for the BoJ has been JPY weakness which has resumed over the past two weeks as market expectations for a rate hike were peeled back. 

Given USD/JPY is now approaching the psychological 155.00 handle, will the BoJ act? I stand by my take that we are likely to see a BoJ hold now and a potential rate hike in the new year. However a surprise cannot be ruled out and that is precisely what makes this week’s meeting all the more exciting. 

There is of course the US Federal Reserve and Bank of England meetings as well which could stoke volatility and impact USD/JPY and GBP/JPY. The consensus for these two meetings are a 25 bps cut from the Fed and a hold of rates by Bank of England.

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If the BoJ do surprise and raise rate by 25 bps the Yen could strengthen significantly with more room for gains against the GBP than the US Dollar in my opinion. The reason lies with US Dollar strength which is likely to continue into early 2025 at least.  US Treasury yields are expected to rise in 2025 as well which further supports the narrative and why GBP/JPY could see more downside on a BoJ hike.

Technical Analysis 

USD/JPY

From a technical perspective, USD/JPY has been on a strong move to the upside since bottoming out on December 3, around the 148.600 handle. 

The move to the upside has been swift and momentum was gained following a break of the descending trendline. As things stand, Bulls appear to be firmly in control heading toward the FOMC and BoJ meetings on Wednesday and Thursday respectively. 

The 50-day MA is currently gearing up for a cross of the 100-day MA in what could be seen as a golden cross pattern hinting at further upside. Despite being a lagging indicator, this does demonstrate the bullish momentum that has built in USD/JPY over the month of December. 

Historically the BoJ have relied on rhetoric at times to keep the exchange rate intact, but that ship has long sailed. One wonders if the central bank was trying to use a similar tactic heading into this BoJ meeting.

Looking at the chart below we have the inner and outer ascending trendlines which could come into play this week and present opportunity. 

A hike by the BoJ could send USD/JPY tumbling toward the outer trendline and push toward 150.00 and beyond. Immediate support rests at 153.500 before the 151.80 and 150.00 handles come into focus. 

Immediate resistance rests at the 155.00 handle with a break above this level, eyeing the swing high at 156.500.

USD/JPY Four-Hour (H4) Chart, December 16, 2024

Source: TradingView (click to enlarge)

Support

• 153.50
• 151.80
• 150.00 (psychological level)

Resistance

• 155.00
• 156.500 
• 157.74

GBP/JPY

GBP/JPY continues to toil below the coveted 200.00 handle. Having breached the 200.00 hurdle, GBP/JPY has failed to find acceptance above this level since breaking below the 200.00 mark in August.

As things stand for GBP/JPY the bears remain in control for now with a break and daily candle close  above the swing high at 196.57 needed for a change in structure to occur which could lead to increased bullish momentum. 

Another sign of bullish momentum is presented by the RSI and the rejection of the 50 level which is now serving as a support of sorts.

GBP/JPY is flirting with a break above the 200-day MA which could embolden bulls and push for a break of the swing high at 196.57. A break of this level will bring focus toward the 198.00 handle before the psychological 200.00 mark comes into focus.

Alternatively, a move lower from here faces support at the 100-day MA which rests at 192.43 before the 190.00 handle comes back into focus.  

GBP/JPY Daily Chart, December 16, 2024

Source: TradingView (click to enlarge)

Support

• 192.43
• 190.00
• 187.62

Resistance

• 196.57
• 198.00
• 200.00

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