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In the pre-European trading on Wednesday (December 6), the USD/JPY continued to oscillate narrowly around 147.20 📊, failing to decisively reclaim the bullish direction above 148. Bank of Japan Deputy Governor Ryozo Himino’s speech, characterized as ‘hawkish-dovish,’ reiterated the commitment to continuing monetary easing but hinted at the end of the negative interest rate policy. This implies the possibility of an early occurrence of a ‘black swan’ event in the currency market ⚠️📍

Reports suggest that while Ryozo reiterated the commitment to continuing monetary easing 💬👌🏻 until the Bank of Japan achieves sustainable inflation through wage increases 📌🔖, he outlined various potential impacts of exiting massive stimulus measures, partly based on studying cases when interest rates turned negative. He stated, “Today, I would like to provide a perspective by observing what happened to the net interest income of relevant industries during the transition from a positive interest rate state to a state without positive interest rates. The first rate hike since 2007 may not be as harmful as some fear. If rates rise to positive values, households may benefit from increased net income 💵🆙, and the impact on the corporate sector may be limited.” He also mentioned that the financial system has enough resilience to cope with this transition.

These remarks represent the most explicit signals from the Bank of Japan leadership so far 📶‼️ indicating that authorities are considering the potential impacts of ending negative interest rates. These views may reinforce expectations among Bank of Japan observers that the bank will end negative interest rates in mid-2024. Ryozo seems intent on reassuring the Japanese public about the prospect of ending the Bank of Japan’s massive stimulus plan. He stated, “If handled properly, there is a good chance that the exit will have positive results, as households and businesses will benefit from a benign cycle between wages and prices ♻️✅ Financial institutions holding long-term bonds may face unrealized losses, but they also have the opportunity to increase investment returns by replacing existing bonds with new ones.”

Market participants had previously speculated that the negative interest rate policy would end in April 2024 ⛔ Overnight index swaps now estimate that this policy will end in July. Swaps indicate that by the end of next year, the cumulative rate hike will reach 21 basis points. The U.S. JOLTS job openings for October fell to a two-year low of 8.733 million, further confirming a cooling U.S. labor market ⬇️⏬ Pessimistic data triggered an initial sell-off of the U.S. dollar, but this was quickly reversed by the strong push from the U.S. ISM non-manufacturing PMI, which rose from 51.8 to 52.7 in November, exceeding the expected 52.0. The rapid rebound of the U.S. dollar boosted the USD/JPY from the daily low of 146.56, and the currency pair closed at 147.20 on Tuesday, almost unchanged from the current level. From a broader perspective, the USD/JPY is rebounding from the three-month low of 146.23 touched last Friday, following the rise of the U.S. dollar 🇺🇸💲

Meanwhile, the market is paying attention to Japan’s latest inflation data. Data released by the Statistics Bureau on Tuesday showed 📄🔎 that the core Consumer Price Index (CPI) for Tokyo rose 2.3% in November, excluding volatile items such as fresh food. As expectations grow for the Bank of Japan to end the negative interest rate policy early next year, the USD/JPY dropped to multi-month lows. Now, all eyes are on the new U.S. employment report to be released later on Wednesday 📜🖊️, considered a ‘mini nonfarm payroll’—the ADP employment change data, which will confirm that the U.S. labor market conditions are easing. However, the main event risk this week remains the nonfarm payrolls data (NFP) on Friday.

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