USDJPY has high-level data ahead of the Asian session with a BOJ interest rate decision.
The current interest rate in Japan is -0.1%, and the bank’s governor has recently stated that rates are not set to rise soon.
USDJPY – Weekly Chart
USDJPY has a bearish tone after the recent unwind in the US dollar. The weekly chart above highlights key levels traders can target with a BOJ surprise.
The BOJ shocked markets in December with a change to its Yield Curve Control (YCC), lifting the ceiling of the 10-year note from 0.25% to 0.50%. That policy had been in effect since 2016 and caught traders off guard.
Some of the major banks have been weighing in with their expectations for this meeting:
“The BoJ is expected to stand pat after delivering its unexpected decision in December to expand the yield curve band. Governor Haruhiko Kuroda’s future guidance will remain dovish, but apart from that, the market appears to be pricing in additional normalisation steps from the next BoJ governor,” ING analysts said.
“We expect no change in policy (even if we feel there are risks they will) but believe the associated Outlook Report will show an upgrade to the bank’s inflation forecast to around 2% for 2022-2024. We expect the BoJ to abandon YCC by the end of Q2 this year, amid forces such as the ‘shunto’ spring wage negotiation, a positive output gap and leadership changes at the bank,” said analysts at Deutsche Bank.
Citigroup was more hawkish on the YCC measures, saying:
“We expect YCC to be abolished. The BoJ decided on an unexpected policy change (i.e., widening of the target range for 10-year JGB yields) in December, but 10-year JGB yields have already stuck at the upper limit of the new range of +0.5%, resulting in renewed distortion in the yield curve.”
The USDJPY could continue to see an unwind after the BOJ interest rate and policy meeting. The support levels are in place for traders to take advantage of a bearish scenario for the USD.
