Early on Friday, around 03:00 AM GMT, the Bank of Japan (BOJ) will announce routine monetary policy meeting decisions taken after a two-day brainstorming. Following the rate decision, BOJ Governor Haruhiko Kuroda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.
The Japanese central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero.
Although the BOJ isn’t expected to offer any change in its monetary policy, the latest hawkish moves of the major central banks and the inflation fears highlight today’s BOJ as the key event for the USD/JPY traders. Also increasing the importance of the BOJ announcements is the recent market intervention by the Japanese central bank.
Ahead of the event, Westpac said,
As global bond yields have surged, the BoJ’s -0.25% to +0.25% yield target range for the 10-year bond has come under heavy pressure, but the bank has defended the 0.25% area and is expected to reaffirm this policy today. Officials continue to insist that the rise in inflation to 2.5%yr in April 2022 from -1%yr in early 2021 is overwhelmingly cost-push and not likely to be sustained. But of course markets will be on edge, especially after the surprise hike in Switzerland.
Additionally, FXStreet’s Dhwani Mehta said,
Unless the increase in the yield target is accompanied by a strong intervention by the government to buy the yen, any adjustment to the yield cap will be self-defeating. It’s also worth noting that managing the exchange rate value is under the purview of Japan’s Ministry of Finance (MOF).
How could it affect the USD/JPY?
USD/JPY takes the bids to refresh intraday high around 133.30, consolidating the first weekly loss in three, amid broad US dollar strength, as well as the pair traders’ anxiety ahead of the BOJ’s announcement.
Japanese policymakers have already turned down the expectations of any major moves from the Bank of Japan (BOJ). However, the latest comments from Japanese Finance Minister Shunichi Suzuki saying, “Government must respect the independence of BOJ,” tease the traders.
Even so, the BOJ’s 0.25% yield cap and the 2.0% inflation target hint at the inaction of the Japanese central bank. It’s worth noting, however, that the efforts to tweak the Yield Curve Control (YCC) policy could offer a knee-jerk strength to the Japanese yen (JPY).
On a broader front, the wide division between the policymakers of the US Federal Reserve (Fed) and the BOJ keeps favoring the carry trade opportunities and hence the USD/JPY is likely to remain firmer until the BOJ takes any drastic measures. In an alternative case, the USD/JPY reaction will depend upon Fed’s bi-annual Monetary Policy Report and Powell’s speech, up for publishing later in the day.
Technically, USD/JPY stretches the bounce off 100-SMA while approaching a one-week-old horizontal resistance area, surrounding 133.50-60. Given the RSI rebound from the oversold territory, coupled with the receding bearish bias of the MACD, the USD/JPY prices are likely to defend the latest recovery. Alternatively, pullback moves may remain elusive until the quote stays beyond the 100-SMA level of 131.40.
Key Notes
USD/JPY Price Analysis: Bulls approach 133.60 hurdle ahead of BOJ
BOJ set to maintain ultra-low rates, sound warning over weak yen
USD/JPY stays defensive above 132.00 on softer yields, BOJ, Fed’s Powell eyed
BOJ Preview: Slim chance for a tweak in YCC policy
About BoJ Rate Decision
BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.