Can JPY Pairs Continue the Decline As BOJ Tweaks Policy?
Markets have gotten used to Bank of Japan remaining on hold as other major central banks went mental with rate hikes this year. BOJ has been keeping interest rates unchanged at -0.10% and expectations for yesterday’s meeting were that they kept everything on hold again. Markets had pretty much settled on waiting until the current BOJ governor Kuroda’s term finished in April for any sort of change from the BOJ.
But Kuroda ducked on that today. Haruhiko Kuroda shocked the markets by adjusting the central bank’s yield curve control program and sparked a sharp rise in the yen, sending JPY pairs crashing lower. EUR/JPY was trading at 145.80 ahead of the BOJ meeting but crashed around 7 cents lower. Although, the 200 SMA (purple) held the decline, which keeps the trend still bullish, so let’s see if this pair will fall below that moving average, which will be a bearish signal.
Changes Made by the Bank of Japan
- To maintain a -0.1% target for short-term rates
- A 0% cap for the 10-year bond yield (around 0%)
But they widened that band in which they allow the 10 yr JGB to move from 0.25% to 0.5%. This, in effect, is a long-awaited ‘pivot’ from the BOJ. A mini pivot for sure, but given nothing was expected until April, its significant.
More significant items from the statement:
- To increase bond purchases to JPY 9tln/month in Q1
- Will review operation of Yield Curve Control (YCC)
- To conduct additional JGB purchases on December 2
EUR/JPY Daily Chart – The 200 SMA Held As Support
Sellers sent this pair 700 pips lower yesterday
The Bank of Japan has stepped in to stem the losses, or at least slow them. The decline continued in the JPY although the BOJ offered the following:
- Offered to buy up to JPY 100bn in 1-3yr JGBs
- JPY 100bn in 3-5yr JGBs
- JPY 300bn in 5-10yr JGBs
- JPY 100bn in 10-25yr JGBsPairs Change
USD/JPY Daily Chart – The 200 SMA Has Been Broken
The 20 SMA held as resistance
USD/JPY turned bearish after the intervention by the Ministry of Finance of Japan in October and the USD weakness helped keep the pressure to the downside. Although, the 200 SMA (purple) was holding well as support this month, while the 20 SMA (gray) was acting as resistance. After Yesterday’s move, all moving averages shave been broken now.