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Abstract: Seiji Adachi, a board member of the Bank of Japan (BOJ), spoke again in the European session on Wednesday, pointing out that "it is difficult to end the negative interest rate before the positive wage inflation cycle begins". As a result of the above comments, the USDJPY showed new buying, rising to the range of 147.50 again. The USDJPY fell by 0.18% to 147.20.

Fundamentals

Seiji Adachi, a board member of the BOJ, admitted that although there are early signs that there is a wage inflation cycle, these are not enough to consider withdrawing from ultra-loose monetary policy.

He stressed the importance of continuing to implement monetary easing policy, and said today that "at present, it is appropriate to continue to implement monetary easing policy patiently."

Seiji Adachi specifically pointed out the challenges brought by China's slowing economic growth and the potential impact of a sharp interest rate hike in the U.S. and pointed out that these factors make it difficult to predict whether Japanese companies will raise wages substantially next year.

He also talked about the differences in wage growth ability between large and small enterprises. Although some big companies seem ready to continue to raise wages, many small companies, especially those in remote areas, are trying to raise wages because of the challenging business environment.

He stressed that "we have not yet reached the stage where we can discuss withdrawing" from the ultra-loose policy.

Due to Seiji Adachi's mild remarks, the USDJPY retreated most of the decline, and the generally positive risk tone is expected to weaken the safe-haven JPY in the short term.

Although Japan's economy is expected to slow down to less than 1% next year, it is expected that Japan's wages will have a new round of strong growth, and with the improvement of inflation expectations, it is estimated that the BOJ will withdraw from the negative interest rate policy in the first quarter of next year. Even if Japan's ultra-loose efforts are no longer expected, after the U.S. starts to cut interest rates next year, it might only cut interest rates by 25 basis points every quarter, which is not enough to make the JPY appreciate sharply; It is estimated that the USDJPY will rise to 155.00 next year and 142.00 at the end of the year. However, if the Fed does not cut interest rates, the USDJPY may rise to 160.00.

Technical Analysis

The USDJPY fell again today, the third time since the adjustment in July that it fell below the previous low. So, has the USDJPY started to reverse its directional structure for it? Our conclusion is: not really!

The USDJPY is currently testing the upward-sloping trendline that started on March 24, 2023. Although the USDJPY has previously broken below the 100-day SMA, it has not materially stabilized below such a level; moreover, the upward-sloping trendline still protects the USDJPY's upward structure, raising the importance of the competition between the bulls and bears.

Meanwhile, momentum indicators also support the current rebound. The Average Directional Index (ADX) has managed to climb above the 25 level, thus signaling a stabilizing market trend. More importantly, the Relative Strength Index (RSI) is showing signs of oversold conditions and is turning upwards.

If the bears are still capable of extending further down, they may first try to break the strong support level in the 146.65-147.71 range, which consists of the 89-day SMA, 100-day SMA, and 78.6% Fibonacci retracement. If successful, as soon as they break below the September 7, 2022 low of 144.99, there will be an opportunity for more selling towards the next key range of 141.98-142.49.

On the other hand, bulls seem ready to stop the current downward trend and defend the range of 146.65-147.71. Then, they may gradually push the USDJPY to the 50-day SMA of 149.62. Breaking through this level, the bulls will test the high of 150.15 on October 3, 2023. Even higher, the bulls will break through the high of 151.94 created on October 21, 2022.

Overall, although short-term bears are still in control of the market, for the current trend structure to be extended, they would need to break below the strong 146.65-147.71 range as well as the key uptrend line. Otherwise, the USDJPY uptrend structure remains intact. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 147.50

Target price: 151.94

Stop loss: 145.00

Deadline: 2023-12-13 23:55:00

Support: 146.70, 145.95, 144.45

Resistance: 148.00, 148.87, 149.87