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USD/JPY Latest: Yen Plummets on BoJ Dovish Stance, Carry Trades Thrive

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Jun 17, 2022 | DailyFX
Richard Snow, Analyst


  • BoJ unmoved – maintains dovish policy despite widening rate differentials
  • USD/JPY: Key technical levels analyzed in the wake of the BoJ meeting
  • Major event risk: BoJ minutes, Japan inflation and Jerome Powell speech

The Bank of Japan (BoJ) announced no change to the interest rate, as expected, and continued to stress that it will “closely watch” the impact of sharp FX moves in relation to its effect on the local economy. The BoJ committed once more to unlimited 10-year JGB purchases to guide the yield towards its zero percent target, by a vote of 8-1.

In essence, the yen is now even less appealing from a fundamental perspective as major central banks like the Fed and Bank of Canada anticipate have hiked aggressively, with the view for more. A widening interest rate differential across the board highlights the greater ‘carry trade’ opportunity as investors and traders may look to borrow the low costing yen in favor of higher yielding currencies like the US and Canadian dollars.

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USD/JPY Soars as Bank of Japan Defends Ultra-Loose Policy and Not the Yen, Where to?

USD/JPY soars as Bank of Japan defends ultra-loose policy and not the yen,  where to? | IG South Africa

Jun 17, 2022 | Daniel Dubrovsky, Strategist | DailyFX


  • USD/JPY soars as Bank of Japan defends easy policy and not the Yen
  • The central bank only offered some verbal jabs against the currency
  • All eyes now turn to Japanese CPI next to see if price pressures rise

The Japanese Yen was initially hammered as the Bank of Japan retained policy unchanged in June. Benchmark lending rates and a 10-year government bond yield target remained at -0.1% and 0% respectively. This was not a surprise. Rather, markets were looking to see if the central bank would start shifting its forward guidance amid a weakening currency and rising local inflation.

Heading into the Bank of Japan rate decision, overnight implied volatility in USD/JPY surged to the highest since March 2020. This reflected surging demand to hedge daily movements in the pair. An unexpected rate hike from the Swiss National Bank might have played a role here, perhaps raising the stakes for Mr. Kuroda to follow in its footsteps.

And volatility is what we got as you can see in the reaction below. USD/JPY initially popped before whipsawing in the minutes after.

It wasn’t just traders who were watching the Yen, but the BoJ itself. The rapid depreciation in JPY was noted as an economic headwind by Governor Haruhiko Kuroda earlier this week. He said that it would be ‘negative for the economy’. For an island nation economy that purchases goods abroad, especially energy, a soft Yen could result in the nation importing inflation and pushing up CPI.

In a rare occurrence, the central bank noted that it ‘needs to pay due attention to currencies and markets’. However, outside of verbal jabbing, an explicit mention of intervention was notably absent. Instead, the central bank seems committed to defending its ultra-loose policy. Mr. Kuroda said that the central bank “will add to easing without hesitation if needed”. This could leave the Yen vulnerable to an ongoing divergence between the central bank and its major peers, who are turning increasingly hawkish.

With that in mind, the next Japanese inflation print is due next week on June 23rd at 23:30 GMT. A stronger print could result in some Yen volatility. One-week implied volatility for USD/JPY sits around 20.90, the most since March 2020. If the last remaining dovish major central bank is expected to fold, that also does not bode well for market sentiment, something that the anti-risk currency will surely…appreciate.

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