USD/JPY Technical Analysis: Anticipating Jerome Powell's Statements

• At the beginning of this week's trading, the Japanese yen fell strongly against the background of the Nikkei report that the Japanese government had contacted the Deputy Governor of the Bank of Japan, Masayoshi Amamiya, regarding the succession of Haruhiko Kuroda as head of the Bank of Japan.
• Accordingly, the Japanese currency fell as much as 1% against the dollar amid speculation that Japan's ultra-easy monetary policy will continue if Masayoshi, who was instrumental in crafting wide-ranging stimulus programs, is the next heir.
• The bulls jumped in the USD/JPY currency pair, towards the 132.90 resistance level, higher than the positive US job numbers gains on Friday, with gains towards the 131.19 resistance level.

I have often recommended buying the US dollar against the Japanese yen (USD/JPY) from every downward level, as the divergence in the future policy of both the Central Bank of Japan and the Federal Reserve Bank and economic performance favors the return of the currency pair's gains.

Official Masayoshi is a longtime heavyweight at the Bank of Japan and is seen by market players as the closest candidate to continuity among potential replacements. The Nikkei report added that the government is in the final stage of finalizing its nominations, citing government and ruling coalition officials.

Japanese officials including the deputy government spokesperson refuted the Nikkei report, saying it was not based on facts. The central bank told Bloomberg that it was not in a position to comment on the nomination report. Analysts say that Masayoshi will influence the performance of the yen and will boost bond yields. The benchmark 10-year bond yield rose to 0.5%, a move indicating that traders are reluctant to drop their bets on the Bank of Japan's policy adjustments, regardless of who becomes the next governor.

BoJ watchers know that initial local media reports about changes in central bank personnel should be treated with caution, as the government has in the past gone with other candidates facing heavy criticism after names were leaked to the media ahead of the official nomination.

Deputy Prime Minister Yoshihiko Isozaki said the government has not communicated with Masayoshi, and gave the strongest rebuttal to the report. His remarks were largely echoed by Toshimitsu Motegi, the ruling party's general secretary, later in the day.

Earlier on Monday, Finance Minister Shunichi Suzuki said he had not heard anything about the BoJ nomination, while Masayoshi did not respond to a query from reporters about whether he had been approached for the position. For his part, Japanese Prime Minister Fumio Kishida said that the nomination for the post of governor will come in February. The government will also nominate its candidates for the two deputy governor positions.

Kyodo News reported yesterday that the nomination would come sometime next week. The imminent change in leadership could lead to policy adjustments after years of full stimulus. Speculation raged that such changes would accompany the new ruler. If this view prevails among investors, the Japanese yen is likely to remain under pressure for the time being even if the Bank of Japan led by Masayoshi does not rule out the possibility of a policy shift.

 Kuroda is set to step down as governor of the Bank of Japan on April 8 after the longest tenure by the central bank in its 140-year history. He was instrumental in driving one of the most ambitious monetary stimulus programs of modern times—and Masayoshi was a key figure in helping to design the Bank of Japan's policies.

USD/JPY Forecast

According to the performance on the daily time frame chart, the price of the USD/JPY currency pair is in the stage of breaking the downward trend, and the shift to the upside will be confirmed if the currency pair settles above the 133.80 resistance, and for the same time period, the return of the currency pair to the vicinity of the 130.70 support level will restore the performance to Performance neutrality with a downward bias.

Today, the currency pair will be affected by what was reported about the future of the Japanese Central Bank's policy and new statements from US Central Bank Governor Jerome Powell. I still prefer to buy the currency pair from every downward level.