USD/JPY: Hike has been priced in - OCBC

USD/JPY consolidated after the recent decline. Markets have nearly priced in a 25bp hike (92% probability) at the upcoming MPC (Friday). USD/JPY was last seen trading at 155.70, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Worry of BoJ dovish hike

"From a markets point of view, the risk is a dovish hike as this may suggest that USDJPY's move lower may be more constrained. We remain of the view that BoJ has room to normalize policy as economic data (inflation wage growth) continues to support. Fast Retailing (Uniqlo) announced it will raise starting pay for new salary by 10%, and 5% for other employees. Meiji Yasuda announced raising wages by average of 5% for all 47k staff starting April. Elsewhere, JP CPI, PPI were all higher, paving the way for BoJ policy normalization."

"But there is a risk that BoJ may prefer not to commit too early to future guidance to avoid unnecessary JPY strength from derailing any progress. On USD/JPY, divergence in Fed-BoJ policies should bring about further narrowing of UST-JGB yield differentials and this should underpin the broader direction of travel for USD/JPY to the downside. But the risk to the view is a slowdown in pace of policy normalization - be it the Fed or BoJ."

"Daily momentum is bearish but RSI shows sign of rising. Consolidation is likely. Resistance at 157.10 (21 DMA), 158.80 (recent high). support at 154.90 (50 DMA), 154.30 (23.6% fibo retracement of Sep low to Jan high) and 152.80 (200 DMA)."