Bearish view
Bullish view
- Set a buy-stop at 129.25 and a take-profit at 130.25.
- Add a stop-loss at 128.
The USD/JPY price rose and then retreated after the latest interest rate decision by the Bank of Japan (BoJ). It rose to 131.53, which was the highest level since January 12. The pair then dropped to a low of 127 as the market reacted to the BoJ surprise.
Bank of Japan decision
The USD/JPY price reacted to the decision by the BoJ. In it, the bank’s committee voted unanimously to maintain its yield curve control. In it, it will purchase a necessary amount of Japanese government bonds without setting the upper limit so that the 10-year yields remain at about plus and minus 0.5%.
Defending the yield curve has become an expensive affair. For example, it has already spent over 17 trillion yen buying government bonds. At the current exchange rate, this is equivalent to over $132 billion.
The rate decision was a surprise since most analysts were expecting the bank to tweak its message about yield curve control. Precisely, they were expecting it to lift the cap of the bond yield range that has been in place since 2016. The bank also decided to leave its short-term bond yield to -0.1%
Japan’s inflation has been slowly picking up. Recent data showed that consumer price index surged to almost 4% in December as energy and food prices rose. Still, the bank believes that this inflation is transitory and that it will move back below its 2% target as oil prices retreat.
The USD/JPY price also reacted to the weak economic data from Japan. According to the statistics agency, core machinery orders dropped by 8.3% in November, signaling that the economy is slowing. Meanwhile, in the United States, data revealed that retail sales plunged by 1.1% in December while the producer price index (PPI) dropped from 7.3% in November to 6.2% in December.
USD/JPY forecast
The USD/JPY price rose and then declined after the BoJ decision and US retail sales numbers. It was trading at 128.73 on Thursday morning, which was lower than the important support level at 129.54, the lowest point on January 3. It has moved below the 25-day and 50-day moving averages. The pair also moved below the standard pivot point.
Therefore, the pair will likely continue falling as sellers target the next psychological level at 127. The stop-loss of this trade will be at 130.
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