USD/JPY Rallies as Expectations Run Amok Ahead of BoJ Governor Change

The USD/JPY pair has been moving higher since the middle of January, as traders brace for any change or degree of monetary policy from Japan’s new central bank chief. With the current governor’s tenure set to end on April 8, the new BoJ chief, Kazuo Ueda, will be faced with a tough set of problems.

Japanese year-over-year inflation hit 4% in December, the highest level since January 1991, while Q4 growth fell short of expectations, growing only by a tepid 0.6%, according to recent data. Ueda will have to decide when and how the BoJ will need to start reducing its ultra-loose monetary policy to keep inflation in check while also providing enough monetary slack for the economy to continue growing.

As other countries have demonstrated, once inflation becomes entrenched, it becomes increasingly difficult to reduce. Therefore, the new BoJ governor will have to make some tough calls when it comes to Japan’s monetary policy. Although he is unlikely to make any announcements on his first day in office, news of potential policy tweaks is expected soon after Ueda assumes his new role, given the economic challenges Japan is currently facing.

USD/JPY Likely to Continue Higher

In the meantime, traders continue to monitor USD/JPY’s bullish pattern of higher highs. Retail trader data show that 43.50% of traders are net long, with the ratio of traders short to long at 1.30 to 1. The number of traders net-long has increased by 6.39% since yesterday but is 3.25% lower compared to last week. In contrast, the number of traders who are net short has declined by 0.78% since yesterday but increased by 10.18% compared to last week.

It remains to be seen how the new BoJ governor’s policies will affect the Japanese yen and the USD/JPY pair. However, given the current economic climate, it’s clear that he has a challenging job ahead of him, and any decision he makes could have a significant impact on the financial markets.