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Japanese Yen Slips as BoJ Leaves Policy Unchanged but Sees Higher Inflation. Can USD/JPY rally?

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  • The Bank of Japan keep interest rate targets and asset purchases unchanged
  • The bank anticipates higher inflation in 1 and 2-years but steady for now
  • The Yen weakened on the news. Will USD/JPY make new highs?
Japanese Yen Slips as BoJ Leaves Policy Unchanged but Sees Higher Inflation.  Can USD/JPY rally?


After markets returned from Tokyo lunch break, the lift in inflation expectations from the BOJ appeared to spook markets with G-10 yields rising and developed market equities across Asia moving lower.

The interest rate sensitive tech stocks that make up a significant component of Korean and Taiwanese indices were particularly hard hit.

US equity futures also sank with the Nasdaq leading the way, down over 1%. The S&P 500 and the Dow were lower to a lesser extent.


The Japanese Yen resumed weakening today after the Bank of Japan (BOJ) left monetary policy unchanged. For the market, the focus of the 2-day meeting was on any changes around inflation expectations, and they delivered.

1-year inflation expectations were lifted from 0.9% to 1.1% and 2-years from 1.0% to 1.1%.

Growth forecasts were mixed with current GDP dropped to 2.8% from 3.4%, the 1-year outlook up 3.8% from 2.9% and the 2-year outlook dropped to 1.1% from 1.3%.

With this slowing of near-term growth and the commitment of the BOJ to maintain yield curve control (YCC), the 10-year rate Japanese government bond (JGB) yield has fallen to 0.135%. It made a high of 0.175% last week.

That JGB has not traded above 0.20% since 2016 as the BOJ maintains a policy of keeping the yield within plus or minus 0.25% around zero.

USD/JPY is around 0.2% higher from just before the announcement, while the Nikkei 225 has continued on from a positive to start to now be over 1.1% higher at the time of going to print.

Prior to this week’s meeting, the market had been speculating that the BOJ could hint toward a change in the skew of price risks from the downside to the upside.

This had the market focused on the BOJ’s 1-year inflation forecast and now that it has been lifted, it could pave the way for scaling back stimulus later in the year.

Nevertheless, it should be noted that the new forecast of 1.1% is still below the 2% inflation target.

Headline Tokyo CPI for December year-on-year came out earlier in the month and printed slightly above expectations at 0.8%. Headline national CPI is due out on Thursday and a Bloomberg survey has 0.9% anticipated for the same period.

BOJ Governor Haruhiko Kuroda has reiterated a number of times his willingness to keep rates low despite the Federal Reserve’s intentions to begin lifting them.

The Bank of Japan has made it clear in the past that they would only consider monetary policy tightening when fiscal policy is sufficiently loose and that growth, employment and inflation have warranted it.

With elections coming up in the Japanese summer, it is anticipated that Prime Minister Fumio Kishida will herald a significant stimulus package at some stage.

Energy commodity prices have started 2022 where they left off from last year and have continued moving higher. While a weakening Yen would be welcome by exporters, it would further drive-up power prices for consumers.

This inflationary impact would be a source of annoyance for the BOJ as supply driven price pressures in a low growth environment are problematic for them.

Governor Kuroda will be giving a press a conference at around 0330 GMT.



The USD/JPY moved higher on the Bank of Japan monetary policy announcement.


Chart created in TradingView



Written by Daniel McCarthy, Strategist for DailyFX.com. 18th Jan 2022.

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Japanese Yen Forecast: Brief USD/JPY Rebound as BoJ Squashes Recent Speculation

Japanese Yen Price Analysis and News

  • BoJ Alter Inflation Outlook as Expected
  • BoJ Governor Kuroda Recent Speculation, JPY Initially Slips

Japanese Yen Forecast: Brief USD/JPY Rebound as BoJ Squashes Recent  Speculation


Overnight, the main highlight had been the Bank of Japan monetary policy meeting, where officials kept policy unchanged, as widely expected, keeping rates at -0.1% and the 10yr JGB yield target at 0%. Much to many market participants expectations following a series of source reports, the Bank stated that the risks to the price outlook were “roughly balanced” from “skewed to the downside”. However, following the decision, Bank of Japan Governor Kuroda squashed recent speculation, by stating that the BoJ is not considering rate hikes at all or tweaking current monetary easing during his remaining term, which ends in April 2023. The initial response saw the Japanese Yen slip a touch, testing 115.00 amid an unwind of traders front-running the recent BoJ speculation. However, with market participants back on yield watch, with the US 10yr at 1.83%, the subsequent pullback across the equity space has supported the Japanese Yen as the US curve continues to flatten.

Now with the Bank of Japan risk event passing, the focus will be on the Federal Reserve for USD/JPY. Although, with Fed tightening more or less fully priced in, the fresh impetus for USD buying at a time where positioning is crowded may be harder to come by. Therefore, the early YTD high at 116.30 looks to be intact for now, despite elevated US yields. A reminder that USD/JPY would likely pick up when yields are rising and equities remain stable, however, this has not been the case with US tech among the underperformers since the beginning of the year.

Support: 114.23 (55DMA), 113.50 (Jan 14th low)

Resistance: 115.00, 115.50

USD/JPY Chart: Daily Time Frame

Japanese Yen Forecast: Brief USD/JPY Rebound as BoJ Squashes Recent Speculation

Source: Refinitiv


Jan 18, 2022  |  Justin McQueen, Strategist. DailyFX

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