The USD/JPY pair is frozen in place. The price has been fluctuating in a very narrow range for the second day in a row, reflecting how indecisive both bulls and bears are. Traders stand still, waiting for Friday's high-profile event: it will shake up not only USD/JPY, but also many other dollar pairs. Therefore, it is not surprising that market participants are not in a hurry to open big positions ahead of a hot Friday.

Hot Friday

The February 24 economic calendar is indeed full of notorious fundamental events. Firstly, Japanese inflation growth data for January will be released. Secondly, Kazuo Ueda, Haruhiko Kuroda's likely successor as governor of the Bank of Japan, will address the Japanese parliament. Third, the U.S. will release one of its most important inflation indicators, which is closely monitored by the Federal Reserve members (core PCE index). Fourth, several Fed officials will speak on Friday, notably Philip Jefferson (who has permanent voting rights) and Loretta Mester. On top of that, the University of Michigan consumer sentiment index and new home sales will be released.

Market participants will not be bored: volatility is likely to be higher in all the dollar pairs at the end of the week. But if we speak about the pair directly, then Ueda is at the head of it.

Word from Ueda

Let me remind you that the new BOJ governor, who will take office in April, is expected to change the ultra-soft policy of the central bank. The relevant assumptions began to be voiced in December, when the Japanese central bank expanded the range of yield fluctuations on 10-year government bonds at the end of the last meeting in 2022. This decision was made, firstly, quite unexpectedly, and secondly, amid intensifying inflationary growth. Therefore, the market interpreted the results of the December meeting very unambiguously, coming to the conclusion that the Bank has taken the first step towards the normalization of monetary policy. Although Kuroda repeatedly denied such assumptions, the market ignored this rhetoric in light of his imminent resignation.

That's why USD/JPY traders will be focused on Ueda's speech, who will make his stance public for the first time.

His speech could have a major impact on the yen, especially if his rhetoric is more hawkish towards market expectations. However, judging by one of his earlier statements (to Reuters), that seems unlikely. Kuroda's 71-year-old successor has stated that he will stick to the current course.

Yet the intrigue remains. Moreover, traders' initial dovish mood could play an unexpected role if Ueda's rhetoric is even a millimeter sharper than that of Kuroda.

Ueda + inflation

Importantly, Ueda's speech will coincide with the release of January data on Japanese inflation growth. Recall that the overall consumer price index rose 4.0% in December, a new high in the last 41 years. The CPI excluding fresh food also showed positive dynamics (up to 4.0%), as did the consumer price index excluding food and energy prices (this indicator rose to 3.0%). The Corporate Commodity Price Index (which measures the prices of goods purchased by Japanese corporations) jumped 10.2% year-over-year in December, beating the average market forecast of a 9.5% increase.

And judging by preliminary forecasts, Japanese inflation will once again break multi-year records in January. Both the overall and core CPI should rise to 4.2%. Excluding food and energy prices - up to 3.1%. If these indicators come out even at the forecasted level (not to mention the green zone), it will be harder for Kuroda's potential successor to defend an ultra-soft monetary policy. Any doubt, any hawkish hint, will be used in favor of the yen.

Conclusions

Ueda's policy speech has the potential to trigger price turbulence in the pair. If his view of the situation differs from Kuroda's, if he admits to the likelihood of a normalized monetary policy in the future, the yen will strengthen across the market, and this includes the pair. The "green color" of the inflation report can only add to the pressure on the USD/JPY pair.

Ahead of such significant events, it is advisable to maintain a wait-and-see stance on the pair. Moreover, the US inflation release may also play its role - strengthening or weakening the initial effect of the Japanese events.