Yen stabilizes on dovish Ueda

The Japanese yen has started the week quietly after sustaining sharp losses on Friday. In the North American session, USD/JPY is trading at 136.26, down 0.17%.

Ueda supports BOJ stimulus

Bank of Japan Governor nominee Kazuo Ueda appeared before a second parliamentary committee on Monday and again indicated his support for the central bank’s monetary policy. Ueda said that the BOJ’s ultra-loose policy was appropriate and inflation would have to rise sharply before he would consider a change in policy. The incoming governor is playing it safe by showing support for current policy, which is the logical route ahead of his confirmation by parliament.

Despite Ueda’s assurances to the contrary, there is speculation that Ueda will tighten policy in April, when he takes over, or at the June meeting. The markets are carefully monitoring the changing of the guard at the BOJ, as any tweaks in policy can have a huge impact on the yen, as we saw in December when the BOJ widened the band around the yield target. There is also the possibility that BOJ Governor Kuroda could tweak yield curve control policy before he leaves in order to give Ueda some breathing room.  Ueda may be preaching continuity, but investors are anxious that the central bank could shift policy by the summer.

Inflation in Japan continues to rise and the upswing continued with National Core CPI for January, which rose from 4.0% to 4.2%. This was just shy of the 4.3% estimate, but still the highest reading since 1981. The BoJ has insisted that inflation is temporary and is hoping that the government’s massive stimulus package, which includes subsidies for electricity, will lower inflation.

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USD/JPY Technical

• There is resistance at 137.37 and 138.24
• 1.3565 and 134.78 are providing support