Average Pattern Move: +0.53%
Timeframe: Day of BoJ decision
Winning Percentage: 75%
The Bank of Japan (BoJ) is set to hold a two-day policy meeting on January 23-24, 2025, where it will deliberate on a potential interest rate hike from the current 0.25% to 0.5%. Market anticipation is high, with an 80% probability of a 25 basis point increase. In the previous December meeting, the BoJ maintained its rate at 0.25% with an 8-1 vote; Board Member Naoki Tamura dissented, advocating for a 25 basis point hike. Governor Kazuo Ueda emphasized the need for additional data on wage trends and global economic conditions before adjusting rates. Recent developments, including rising Japanese government bond yields and reports of the BoJ considering an upgrade to its core inflation forecasts, have increased the likelihood of a rate hike. However, the BoJ intends to finalize its decision close to the meeting date, taking into account potential market volatility following U.S. President Donald Trump’s inauguration. The upcoming meeting will also feature the release of the BoJ’s Outlook Report, which includes Board Members’ median forecasts for Real GDP and Core CPI. Officials are reportedly contemplating raising inflation forecasts, aligning with the recent acceleration in Nationwide Core CPI to 2.7%.
Seasonal Event Reactions
Over the last 25 years the BoJ has hiked interest rates only four times: 2006, 2007, & twice in 2024. The reaction of the USDJPY has been to move higher in three out of those 4 times. The last BoJ rate hike involved the JPY strengthening and the USDJPY pair moving lower. The maximum loss was -0.39% when the USDJPY fell. So, with the BoJ expected to hike rates, STIR markets are pricing in a 95% chance of a hike, will the USDJPY move higher on a buy the rumor, sell the fact response?
- Annualized Return: +140.03%
- Winning Trades: 3 out of 4 (75%)
- Max Return: +0.86%
Technical Perspective
From a technical perspective major resistance sits at 161 on the weekly chart and key support is at 156. Both levels are marked on the chart below.
Trade risks
The outlook for the USDJPY will ultimately depend on the BoJ policy reaction and a larger than expected rate hike, or even no rate hike, cannot be ruled out.
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