In a dramatic turn of events this week, currency traders have been closely watching the USD/JPY pair as it continues to trend upwards. The divergence in monetary policy between the United States and Japan is now starker than ever, especially after the Bank of Japan’s (BOJ) pivotal move on Tuesday.

The Bank of Japan took the markets by storm, putting an end to its long-standing negative interest rate policy. This decision marks a significant departure from the aggressive monetary easing that has characterized Japanese economic policy for decades. The conclusion of the two-day monetary policy meeting heralded the end of an eight-year era of negative interest rates, signalling a major shift in the BOJ’s approach to stimulating the Japanese economy.

The USD/JPY trading patterns reflect this monumental change. Since last Thursday, the pair has consistently traded above the key technical indicator, the kijun line, which represents the midpoint of the past 26 trading days, located at 148.68. This bullish behavior suggests that the currency pair may be gearing up to challenge the 2024 high of 150.88. A break above this level could open the door to retesting the peaks of 151.92/94 observed in the previous two years.

Moreover, the correlation between USD/JPY and EUR/JPY remains robust, with both the 30- and 60-day correlations registering above +0.70. This strong positive correlation indicates that movements in one pair tend to be mirrored by the other, suggesting a broader market trend that impacts multiple currency pairs.

As the Federal Reserve maintains its stance with higher interest rates compared to the BOJ’s latest shift, the rate differential is likely to continue supporting a bullish outlook for USD/JPY. Investors and traders are advised to keep a close eye on these developments as the currency market adapts to the new dynamics set forth by global central banks.