Yen slides after BoJ stays the course

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USD/JPY posted strong gains today. During the European session, the yen is trading at 147.42, up 0.78%.

The BoJ maintains its policy

All eyes were on the Bank of Japan, which wrapped up a crucial 2-day policy meeting on Friday. The meeting came just days after Japan’s Ministry of Finance (MOF) intervened in currency markets after the yen fell near the 152 line, a new 32-year low. Finance Minister Shunichi Suzuki did not confirm that the Finance Ministry had intervened for the second time in two months, but issued a stark warning, saying the government was “taking on speculators through the markets”.

This set the stage for today’s BOJ meeting. In the end, business was business as usual as the Bank kept interest rates extremely low and maintained its dovish guidance. The BoJ remains an exception with its lax policy, while most other major central banks are tightening their policy in order to curb inflation. It should be noted that the central bank revised its inflation forecast for fiscal year 2023 upwards. Headline inflation was raised to 1.6% from 1.4% in July, and inflation under underlying at 2.9%, against 2.3% in July, with the BoJ’s warning. that the risks were on the upside. The Bank also lowered its growth forecast for fiscal years 2022 and 2023.

Inflation has exceeded the BoJ’s 2% target, but BoJ Governor Kuroda has insisted he will not consider tightening policy until it is clear that the inflation is sustainable. The Bank hinted that might not be that far off, as today’s quarterly BOJ report noted that rising inflation should “lead to sustained price increases accompanied by wage gains”.

The yen has borne the brunt of the BoJ’s ultra-accommodative policy, tumbling around 20% against the dollar this year. With the BoJ making it clear that it won’t throw any lifeline to the yen, the currency will come under pressure from the growing rate differential between the US and Japan unless the finance ministry continues to intervene in the currency markets.

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USD/JPY technical

  • USD/JPY faces resistance at 147.50 and 148.59
  • There is support at 145.23 and 143.14

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Kenny Fisher

A highly experienced financial markets analyst specializing in fundamental analysis, Kenneth Fisher’s daily commentary covers a wide range of markets including forex, equities and commodities. His work has been published in several major online financial publications, including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

Kenny Fisher
Kenny Fisher

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