The USD/JPY pair plummeted by almost 600 points within a matter of hours last week, marking a low at 141.70. However, on the same day, USD/JPY buyers seized the initiative, and at present, they have recovered almost all lost positions, returning to the 146-figure area. The cause of the sharp decline is evident: the Bank of Japan, for the first time in a long time (seven years), contemplated an exit from the negative interest rate policy. Although the head of the Japanese regulator spoke about it in a hypothetical sense, essentially voicing a "statement of intent," the market reacted to these statements with utmost seriousness.

This spring had been compressed for too long (since 2016), so any hints of a change in direction provoke intense volatility in all pairs involving the yen (look at the dynamics of, for example, GBP/JPY and EUR/JPY). However, the euphoria that followed Bank of Japan Governor Kazuo Ueda's statements gradually gives way to disappointment, or rather, the realization that the implementation of the plan may occur in the very distant future and under certain conditions. Therefore, the USD/JPY pair is demonstrating such acrobatic performances: 600 points down and 500 points up.

To briefly recap, last week, Ueda signaled a possible change in monetary policy. One crucial aspect is the place and time when Ueda voiced these signals: in the country's parliament and following a meeting with Prime Minister Fumio Kishida. This is an important circumstance that indicates, so to speak, the "seriousness of intentions."

So, Ueda informed parliamentarians that the Central Bank is considering various options for target interest rates after exiting the negative rate policy. According to him, the regulator can either maintain the interest rate applied to reserves or return to a policy oriented towards the overnight rate. Ueda noted that the central bank has not yet decided which interest rate to choose as the target after removing short-term borrowing costs from negative territory.

However, he did not specify when exactly the regulator plans to change its course. But traders drew their own conclusions: the words of the head of the Bank of Japan were perceived by traders as a signal that the regulator may abandon the negative interest rate policy in the very near future. Some experts rushed to suggest that this could happen as soon as the last meeting of the year, which is scheduled for December 18-19.

The market's reaction was not long in coming – for example, trading in the Japanese yen on the Chicago Merchantile Exchange (CME) reached volumes of almost $75 billion – an absolute record for this year. The Japanese currency strengthened in all pairs, reflecting traders' optimistic sentiment.

The euphoria was short-lived – since the end of last week, the yen has been actively losing its positions. The onset of a "hangover syndrome" has reduced interest in the Japanese currency, pushing the USD/JPY pair upward. This process began last week when market participants doubted that the Bank of Japan would implement the announced intentions in the near future. Today, these doubts have intensified against the backdrop of insights published by Bloomberg. On Monday, the agency's journalists, citing their sources, reported that Bank of Japan officials see "no need" to abandon the policy of negative interest rates at the December meeting. In particular, members of the Japanese regulator stated that they do not see sufficient evidence of wage growth to justify sustainable inflation.

This "cold shower" allowed USD/JPY buyers to continue the upward movement – in just today's incomplete trading session, the pair has grown by more than 150 points. Illusory hopes of traders for a swift tightening of monetary policy have been shattered, colliding with reality.

According to currency strategists at Rabobank, the market is likely to be disappointed with the pace at which the Japanese regulator will unwind accommodative policy throughout 2024. Traders rushed to conclusions that the Bank of Japan would act decisively on this matter – there is no talk of any blitzkrieg. The realization of this fact is driving the USD/JPY pair upward. Soon, the dollar may also join this process: if the Federal Reserve, following the December meeting (December 12-13), announces a "moderately hawkish position" (dispelling rumors about the Fed's intentions to lower rates in the first half of next year), the pair may return to the 150-figure boundaries by the end of this year.

Considering long positions in the pair is advisable after buyers overcome the resistance level of 146.60 (the Kijun-sen line on the daily chart). In this case, the next target for the upward movement will be the level of 148.10 (the lower boundary of the Kumo cloud, coinciding with the middle line of the Bollinger Bands on the same timeframe).