Where Is USD/JPY Heading After the FED and the BOJ Meetings?

Posted Friday, June 16, 2023 by
Skerdian Meta • 2 min read

Taking a look at the chart of USD/JPY, we can observe that the USD gained momentum following the announcement of the FED’s rate decision on Wednesday evening. This sent USD/JPY surging around 200 pips higher from 139.50 to around 141.50 Currently, the pair is trading at approximately ¥141.33.

If USD/JPY can maintain its position above the support level of around ¥140.80 throughout the day, there is a possibility of further upward movement, potentially reaching a new high for the year. Looking into today’s monetary policy announcement by the Bank of Japan (BoJ), it was widely anticipated that the BoJ will maintain its ultra-accommodative stance by keeping its benchmark interest rate and yield curve control program unchanged.

Governor Kazuo Ueda, who assumed leadership of the BoJ in April, has consistently cautioned against prematurely exiting expansionary policies. He has emphasized that a sudden shift towards tighter policies could negatively impact employment, wage growth, and complicate long-term efforts to achieve a stable inflation rate of 2.0%. Ueda’s credibility would be compromised if there were to be an abrupt change in stance.

With the BoJ not yet ready to withdraw stimulus measures and the Federal Open Market Committee (FOMC) likely to raise borrowing costs potentially two more times in 2023, USD/JPY is expected to maintain an upside bias in the near term. While there may be skepticism in the markets regarding the Fed’s plans to resume rate hikes later this year, the yield differentials between the United States and Japan currently favor U.S. dollar strength.

Bank of Japan Policy Meeting

BOJ maintains short-term interest rate target at -0.1%
maintains 10-year JGB yield target around 0%
maintains band around 10-year JGB yield target at up and down 0.5% each
made decision on YCC by unanimous vote

The BOJ made an amendment to the principal terms and conditions of the Complementary Deposit Facility

But adds that there is no change in the framework of the Complementary Deposit Facility and the interest scheme to promote lending

The BOJ on the economy:

Japan’s economy picking up
Japan’s economy likely to continue recovering moderately
Japan’s core consumer inflation likely to slow pace of increase towards middle of current fiscal year
Exports, output moving sideways
Capex increasing moderately
Consumption increasing moderately
Inflation expectations moving sideways after heightening
Uncertainty regarding Japan’s economy is very high

Note that the BOJ again repeats it expects the pace of inflation to slow from the middle of this Fiscal Year. This would be around September/October (Japan’s Fiscal Year begins on April 1).