- Amid its best daily performance in over a month, the USD/JPY currency pair moved after the Bank of Japan announced that it would raise Japanese interest rates and finally abandon negative interest rates.
- Recently, the USD/JPY pair's upward retracement gains reached the resistance level of 150.96 and is stabilizing around it at the time of writing the analysis.
But the question now is: why did the yen fall after the Bank of Japan raised interest rates?
Finally, the Bank of Japan took a decisive step when it raised interest rates and exited the yield curve control policy (a form of quantitative easing that saw the bank buy government bonds to keep yields under control). The bank said that negative interest rates and quantitative easing had achieved the goal of stabilizing prices at the 2.0% target, confirming that the bank believes Japan has emerged from a multi-year deflationary period. At the same time, the Bank of Japan raised the new interest rate range to 0-0.1%, ended yield curve control, and stopped buying ETFs.
According to forex trading platforms, after the decision, the Japanese yen fell. the pound sterling/yen exchange rate rose 0.60% to 192, the dollar/yen exchange rate rose 0.80% to 150.90, and the euro/yen exchange rate rose 0.82% to 163.88.
In general, the weakness of the Japanese yen contradicts the theory that monetary policy tightening through interest rate hikes will boost domestic yields and support the currency. In this regard, an analysis from Danske Bank explains that the forex market reaction is due to three reasons:
- The market was in a position to do so due to months of speculation and innuendo, indicating that the financial market had already ruled out the decision.
- Some expect this to be a one-off move.
- The recent rise in global interest rates is more important than the modest adjustment made by the Bank of Japan.
While the Bank of Japan has ended its yield curve control program and ETF purchases, it has said it will continue to target long-term Japanese bonds, meaning it is still effectively implementing a form of quantitative easing. In short, the Bank of Japan remains a "dovish" central bank compared to its peers, while Japan still enjoys very low bond yields. Moreover, Japanese policy is unlikely to do any heavy lifting for the Japanese yen. Instead, the burden is on other central banks to cut interest rates and close the yield gap with Japan. This is a possibility from mid-year onwards.
USD/JPY Technical analysis and Expectations Today:
According to the performance on the daily chart, the price of the currency pair US Dollar against the Japanese Yen (USD/JPY) is on an upward path. As we mentioned before, the psychological resistance of 150.00 will remain a catalyst for the bulls to further control the trend. Technically, the continuation of gains towards the resistance levels of 151.20 and 152.00 will move the technical indicators towards strong saturation levels for buying. When the price of the dollar declined against the Japanese yen at the beginning of trading this month. Through the page of free live trading recommendations, we recommended buying the dollar against the Japanese yen from every dip level, which proved the strength of the forecasts. Finally, caution should be exercised until the markets and investors react to today's announcement from the Federal Reserve.
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