Yen traders look for opportunity as BOJ gains new leader

27 févr. 2023

The new governor of the Bank of Japan, Kazuo Ueda, is currently in the spotlight as traders attempt to determine how closely he will adhere to his predecessor's ultra-loose monetary policies. Despite inflation in Japan reaching a 40-year high, Japanese interest rates have remained unchanged, causing the yen to weaken considerably over the past year. In his confirmation hearings, Ueda has offered some mild criticism of the current ultra-loose policy, but has not been explicit or specific, in order to avoid limiting his options when he takes full control of the Bank. However, Ueda has also noted that "It is appropriate for the Bank of Japan to continue monetary easing while continuing to devise ways to respond to the current situation," and that his predecessor's policies were "unavoidable".

Due to the ambiguity in Ueda's speeches, trading opportunities may arise in JPY pairs that could be unleashed once the situation becomes clearer. Many market watchers believe that Ueda will be more "flexible" and plans to enact some "policy lurches" in the future after settling into his role. This was the initial thought among traders when Ueda's surprise nomination made headlines in early February, causing a slight spike in the yen. However, the impact on currency markets was short-lived, and the US dollar has continued to climb, notching greater and greater yearly highs. The next two significant hurdles for the pair to overcome are 136.500 and 137.500.

Upon parliamentary approval this week, Ueda will assume the position on April 8, 2023, but his public addresses will be closely monitored leading up to this time. Furthermore, investors will examine past comments, including those from his 2005 memoir, "Fighting Zero Interest Rates," regarding his previous seven-year tenure on the Bank of Japan's policy board.