USDJPY Jump and Comes Down After the BOJ Policy Rate Decision

USDJPY experienced a decline early last week but found strong support at the 50-day Simple Moving Average (SMA). This moving average has been a significant level where buyers have consistently entered the market, reflecting the bullish trend’s resilience. Last week, the price bounced twice from this level, indicating its importance.

Bank of Japan Governor Kazuo Ueda

The latest rebound from the 50 SMA on Wednesday and the subsequent 200-pip rise last Friday after the strong NFP employment figures pushed the price above 157. This suggests that buyers have regained control, reaffirming the broader positive trend in USD/JPY .

USD/JPY Chart Daily – The 50 SMA Pushing the Lows HigherChart USDJPY, D1, 2024.06.14 12:33 UTC, MetaQuotes Ltd., MetaTrader 5, Demo

There were rumours of a reduction in bond purchases by the BoJ would imply a shift towards tightening monetary policy which could strengthen the JPY, since reduced bond purchases may lead to higher yields on Japanese Government Bonds (JGBs), making them more attractive to investors seeking higher returns.

Key Decisions and Insights from BoJ Policy Meeting:

  1. Overnight BOJ Rates:

    • Maintained at 0.1%: The BoJ kept overnight rates unchanged at 0.1%.
  2. JGB Purchases:

    • Decision by 8-1 Vote: The decision on Japanese Government Bond (JGB) purchases was made with an 8-1 vote.
    • Dissenting View: Board Member Nakamura dissented, suggesting that the BoJ should decide to reduce bond purchases after reassessing economic activity and price developments in the July 2024 Outlook Report.
  3. Bond Buying Reduction:

    • Trim Bond Buying: The BoJ decided to trim bond buying to allow long-term interest rates to move more freely.
    • Future Plan: A specific bond buying reduction plan for the next 1-2 years will be decided at the next policy meeting.
  4. Economic and Financial Outlook:

    • Uncertainties Remain High: The BoJ acknowledged that uncertainties surrounding economic and financial developments at home remain high.
    • Moderate Recovery: Japan’s economy has recovered moderately, although some weaknesses persist.
    • Rising Inflation Expectations: Inflation expectations have risen moderately.
    • Accommodative Financial Conditions: Financial conditions have been accommodative.
    • Resilient Private Consumption: Private consumption has been resilient despite the impact of price rises and ongoing issues in the auto sector.
  5. Market and Inflation Outlook:

    • Attention to Financial and Forex Markets: The BoJ emphasized the need to pay attention to developments in financial and forex markets.
    • Gradual CPI Inflation Increase: Underlying CPI inflation is expected to rise gradually.
    • Flat Industrial Output: Industrial output has been more or less flat as a trend, with recent declines due to production and shipment suspensions at some automakers.

Remarks by BOJ Governor, Kazuo Ueda, in the Press Conference

  • It is important to reduce JGB purchases in a predictable manner
  • Decision to reduce JGB purchases is to ensure long-term yields are formed more freely
  • Japan’s economic, price uncertainties remain high
  • Must pay due attention to financial, FX markets
  • The pre-announcement today is an exceptional measure
  • Will begin tapering bond purchases immediately after July meeting
  • The size of cut in bond purchases is to be substantial
  • The specific amount will be decided after listening to input from market participants
  • Decided to put off tapering until next meeting to have discussion with market participants
  • Will adjust rates if underlying inflation rises towards 2% target
  • Constantly checking FX moves, sustainability of those moves, and its impact on prices
  • Will set rates at July meeting while considering reduction in JGB purchases

The BoJ’s decision to delay the development of a specific bond purchase reduction strategy until July, coupled with its dovish stance, has led to a stronger USD/JPY, but theprice has returned back down. Market participants are reacting to the relative policy divergence between the BoJ and the Federal Reserve. Going forward, the BoJ’s July meeting will be a critical event, potentially impacting JPY movements and broader market sentiment. Traders should stay alert to any signals from the BoJ that could indicate a shift towards a more hawkish stance, as well as developments in US monetary policy.

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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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