• Bullish scenario: Intraday buys above 2160.00 with TP: 2177 and TP2: 2182, with S.L. below 2155.00 or at least 1% of account capital*. Apply trailing stop. Remember I’m still bullish on Gold so buy on falls.
• Bearish scenario: Sells below 2177 with TP1: 2150, TP2: 2142, and 2126 with S.L. above 2185 or at least 1% of account capital*.

The Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, reflecting a lack of directional momentum. In case the pair stabilizes above 1.2800, where the mid-point of the ascending regression channel meets the Fibonacci 23.6% retracement of the latest uptrend, it could target 1.2850 (static level) and 1.2880 (upper limit of the ascending channel, end-point of the uptrend) next.

The yen staged a strong recovery last week following several reports suggesting that the Bank of Japan (BoJ) may abolish its ultra-loose monetary policy as early as its upcoming policy meeting, which is scheduled for next week.

After a couple of policymakers noted that the economy is making progress towards achieving the Bank’s 2% inflation objective, another report hit the wires this week, citing sources familiar with the Bank’s thinking, saying that there is a growing number of members warming to the idea of ending negative interest rates this month. This appears to be a realistic take as Japan’s largest industrial labor group said that 25 of its member unions have already seen their wage demands being met in full, which means that the central bank may not necessarily have to wait for April to act.

That said, on Tuesday, BoJ Governor Ueda said that although the Japanese economy is recovering, it is still showing signs of weakness, while Finance Minister Suzuki noted that they cannot declare that deflation is beaten yet, despite some positive developments like the strong pay hikes. Nonetheless, although the yen reacted negatively to those remarks, the probability of a March hike slid only to 45%.

Rate hike or yield curve control adjustment?

So, the big question on everyone’s mind is of course: Will the BoJ exit its negative-rate policy next week? The upward revision of the GDP data for the last quarter of 2023 pointed to a 0.1% q/q expansion instead of the initially suggested 0.1% contraction, while the latest set of Tokyo CPI numbers revealed strong acceleration in inflation, corroborating the market’s view for a decent probability of a March rate hike. Even if they don’t push the hike button at this gathering, policymakers could well telegraph an April move and even tweak their yield curve control.

How may the yen respond?

Having said all that though, even if the Bank announces such a change to its yield curve control framework, but doesn’t press the hike button at this gathering, the yen may pull back as that nearly 50% of participants expecting an immediate liftoff might get disappointed. Nonetheless, with other major central banks seen cutting interest rates at some point during the summer months, a long-lasting fall may be unlikely if the Bank clearly hints at an April liftoff.

On the other hand, a hike now could add fuel to the yen’s engines, especially if it is accompanied by a decision to abandon yield curve control at its current form. Whether this will develop into a sustainable yen uptrend, though, will depend on the pace of subsequent rate increases. Several officials have already noted that after the first hike, the tightening process will be slow and gradual, and if it proves slower than the market’s own projections, then the yen may struggle to stay on the front foot.