USD/JPY Tests the 20 SMA After Taking A Dip on Softer USD
USD/JPY has been displaying incredible strength as it gained around 15 cents from April until the beginning of July. Even after the strong retreat early this month, buyers came back and pushed the price back up from 137 lows to almost 142, claiming back most of the losses. Although the 100 SMA (green) has been acting as resistance at the top and has been pushing the highs lower.
After Credit Agricole’s report on the Bank of Japan (BOJ) meeting outcome, the price of the Japanese Yen (JPY) has fallen below 141 against the US Dollar (USD) by around 60 pips. Analysts are closely watching the BOJ’s July meeting to see if there will be any modifications to the Yield Curve Control (YCC) policy. However, analysts predict that the BOJ is unlikely to make significant changes to the YCC in the upcoming meeting.
Credit Agricole’s outlook on inflation indicates a declining trend in the latter half of 2023. Despite some inflationary pressures, factors such as sluggish wage growth and significant non-financial corporate savings are expected to prevent inflation from consistently approaching the BOJ’s 2% target.
The pressure on the YCC policy is reduced due to market expectations of more rate hikes by the Federal Reserve, with the belief that the climax of these hikes is approaching. This decrease in pressure has led to a reduction in the upward pressure on the 10-year Japanese Government Bond (JGB) yield.
As a result, Credit Agricole believes that the BOJ is likely to maintain its current policy stance in the July meeting, which may lead to disappointment among investors who were hoping for significant changes.
Regarding the outlook for the Japanese Yen, any relief stemming from potential positive surprises in inflation is expected to be short-lived. The recent dip in the USD/JPY by 60 pips can be attributed to some weakness in the USD, along with the belief that the BOJ will keep its YCC policy unchanged and that any boost for the JPY due to inflation surprises is not expected to have a lasting impact.