The USDJPY currency pair was trading up over 118 pips as the US dollar rallied against the Japanese yen after the Bank of Japan left interest rates unchanged, as many had anticipated under the new BoJ Governor. Despite the Fed pausing rate hikes at Wednesday’s FOMC meeting, the dollar proved stronger than the yen.
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Some analysts expect the USDJPY currency pair to relay up to the critical 145.0 level, where there is robust resistance as the dollar continues dominating the yen, given the monetary policy differential between the two countries. The BoJ kept rates stable at -0.10%, while the Fed paused at 5.25%.
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BoJ Governor Kazuo Ueda clarified that the board maintained rates as they were since there was still a distance before the central bank could achieve its inflation target of 2% stably and sustainably. He also noted that there was significant uncertainty regarding the Japanese economy.
The Bank of Japan Governor expects the country’s inflation to slow down to its 2% target by mid this year before accelerating higher towards the end of the year. Investors are closely monitoring the BoJ to see if there will be any significant changes in its monetary policy stance.
As for the Fed, investors were pleased to see the central bank pause rates after ten consecutive rate hikes that have seen rates rise to 5.25%. However, some analysts still expect the Fed to hike rates at its July meeting if inflation remains high and the US labour market remains robust.
Many analysts also expect the BoJ to widen its yield curve control (YCC) policy from the current range of ±50bp to ±100 bps at its July meeting, allowing the 10-year Japanese Government Bonds yield to fluctuate over a wider band.
Japan’s core inflation rose to 3.4% in April, well above the BOJ’s 2% target; hence, it is just a matter of time before the YCC policy is adjusted. Therefore, many expect the BoJ’s next meeting to be a live one where they will announce some changes.
Meanwhile, the US dollar will likely remain stronger than the Japanese yen up to July, boosted by positive news releases.
*This is not investment advice.
The USDJPY price chart.
The USDJPY currency pair was trading up 118.5 pips (0.84%) as the US dollar rallied against the Japanese yen.
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