USD/JPY Rises, Then Drops After Bank of Japan Policy Decision

Talking Points:

• USD/JPY rises and then quickly falls after the Bank of Japan’s policy decision.
• BoJ added several accommodative measures but left the rise in the monetary base unchanged.
• Leaving the monetary base unchanged weighed on the initial response of risk appetite

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The Yen fell against the US Dollar but then quickly rallied after the markets processed the Bank of Japan’s policy vote. The central bank said it will undertake the following actions:

• extend the average maturity of Japanese government bond holdings to seven to twelve years
• create a new ETFs purchasing program
• extend eligible collateral for the central bank’s provision of credit
• extend growth lending programs by one year
• boost the total amount of issue of each J-REIT to be bought

This set of dovish actions may have caused the currency to drop at the start of the announcement.

Although the BoJ took several accommodative measures, it voted to leave the rise in the monetary base unchanged at an annual 80T Yen. This decision weighed on the initial response of risk appetite, which is reflected in the safety-link Yen immediately reversing price action and dropping lower then at the start of the announcement.