The Bank of Japan collapsed the US dollar, signaling a change in policy

On Thursday, the Japanese yen experienced its most significant increase in 11 months, rising sharply.

The dollar declined by 2.2% against the yen, a decrease of more than three figures.

The Bank of Japan has suggested that it may discontinue its policy of negative interest rates.

On Thursday, the yen experienced its most significant one-day surge in nearly a year, following an unexpected indication from the Japanese regulator that monetary policy may be shifting, according to Reuters.

Kazuo Ueda, Governor of the Bank of Japan (BOJ), declared that the regulator has a few choices for setting interest rates when it brings short-term borrowing costs out of the negative range. Markets interpreted this as a sign that the Bank of Japan would soon terminate its negative interest rate policy.

The FxPro analyst team has reported that regional banks in Japan are in favor of the yen and are believed to be advocating for the termination of the yield targeting policy.

At a press conference following his meeting with Prime Minister Fumio Kishida, Bank of Japan Governor Kazuo Ueda stated that they had discussed economic aspects such as consumer price trends and their effect on wages in Japan, according to Bloomberg.

Ueda stated on Thursday that the Bank of Japan's policies will become increasingly challenging to implement from 2023 to 2024.

Traders interpreted his words as a potential indication that the Bank of Japan may discontinue its negative interest rate policy at their upcoming meeting on December 18-19, according to Bloomberg.

The Financial Times has warned that the Bank of Japan's rollback of stimulus policies could have serious repercussions for international debt markets, as Japanese investors own trillions of dollars of foreign bonds. This is particularly concerning as the Bank of Japan is the only major global central bank that maintains its key interest rate at a negative level.

In April 2023, Ueda, the head of the Bank of Japan, initiated a shift in the Central Bank's policy of controlling government bond yields. At the most recent meeting, the regulator decided to take a more flexible stance on the yield of ten-year government bonds, viewing the upper yield limit of 1% as more of a guideline than a strict limit.

If USD/JPY falls below 142.4 on daily timeframes, it could indicate a break in the upward trend. This is because the 200-day moving average and the level of 61.8% of this year’s growth amplitude intersect at this point. A consolidation below this level would open the way to 128, however, the FxPro analyst team warns that there could be a long tug-of-war and reloading of the yen bulls on the approach to 143.