The comments made by Bank of Japan Deputy Governor Uchida in his high-profile speech have been interpreted by the market as more dovish than expected. The USD/JPY broke through the previously heavy JPY 149 level.

The key point of Deputy Governor Uchida’s remarks was that he rejected expectations among some overseas investors for a series of interest rate hikes. With this statement, the path of monetary normalisation and a yen buy-back has been erased. By clearly stating that extremely accommodative conditions will continue even if negative interest rates are lifted, even if negative interest rates are lifted in March or April, interest rates are expected to remain at around 0-0.25% for a fairly long period of time. The statement by Deputy Governor Uchida lifted the Le-Yen, but the pair has since continued to hover at higher levels, with buying at around ¥149.20-25 and selling at around ¥149.50.

The Treasury is probably baffled by the outcome, although Deputy Governor Uchida was wrong to assume a hawkish image on his own for his comments in July last year that led to a strengthening of the yen. If so, even if US interest rates fall slightly, the yen will continue to weaken as the interest rate differential will remain large. 150 yen is a very important resistance point and there are certainly significant sell orders leading up to it. However, the fact that it is still “not falling” suggests that buyers are supporting the lower price. We would like to envisage a ¥150 test in this trend.

In Japan, the BOJ may decide to revise its policy in March, but the decline in real wages is dragging it down. Nevertheless, there is no doubt that interest rates are on the way up.

In the US, the level of the dollar may be revised upwards as Chairman Powell showed caution in cutting interest rates during an appearance on CBS’s 60 Minutes and there is some discussion that the US neutral interest rate may be rising.

The US may keep policy rates on hold for a while, while Europe may cut rates sooner than that. Overall, is the dollar strengthening?