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Japanese Yen Price Forecast: Dovish BoJ Maintains Stimulus, Yen Sinks

Japanese Yen Price Forecast: Dovish BoJ Maintains Stimulus, Yen Sinks

Richard Snow, Analyst

USD/JPY, AUD/JPY, Bank of Japan (BoJ) News and Analysis

  • BoJ continues ETF and bond purchases alongside yield curve control
  • The Yen continued to weaken after the meeting as the BoJ moves further away from other major central banks that have started the rate hiking cycle
  • Japanese Yen analyzed: USD/JPY and AUD/JPY continue impressive runs
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BoJ Remains Supportive Amidst Ukraine Uncertainty and the Inflation Façade

Bank of Japan Governor Haruhiko Kuroda unsurprisingly stated that there is no need for Japan to raise interest rates at all. That comment is closely aligned to the admission that for some time after April, Japan’s core CPI may climb around 2%, largely due to increased oil prices. Since inflation is not the result of an overheating economy and rather due to rising energy and input prices, it appears that the Bank is willing to see out a period of rapidly rising inflation.

Main Takeaways:

  • Yield control: Unlimited bond purchases to keep the 10-year Japanese Government Bonds (JGB) yield around zero percent
  • ETF and REIT purchases with limits of 12 trillion and 180 billion Yen.
  • Purchase of CP and corporate bonds from April at the same pace as before the outbreak of Covid
  • Japan's economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of COVID-19
  • The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner

A dovish BoJ has not supported the value of the Yen which continues to depreciate across the board. Looking at the USD/JPY pair, despite the pullback in the dollar, the pair continues to trade higher. However, recent dollar declines are not anticipated to last with the greenback likely to remain well supported due to its safe-haven appeal as the conflict in Ukraine continues.

The previous 118.60 level offered what looks like a launchpad for a bullish continuation. 120 remains the nearest and most relevant level of resistance. In the event the dollar pullback deepens, 118.60 and 118.00 form nearest support.

USD/JPY Daily Chart

Source: IG, prepared by Richard Snow

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Considering the Yen’s weakness, it is often constructive to analyze a weak currency against a strong currency. In recent days and hours, the Aussie dollar has emerged as a particularly strong option, boosted once more by the recent rise in metals prices (mainly iron ore). The chart below shows the comparative performances of major currencies in the early hours of trading where the AUD was the strongest and the Yen the weakest

Strong vs Weak Currencies (Intraday)

Source: Financialjuice, prepared by Richard Snow

The recent recovery in commodity prices (particularly the metals) has elevated commodity currencies like the Australian dollar. The prior high at 86.25 has been surpassed with the psychological level of 90.00 the nearest level of resistance. Failure to trade above 90.00 would see the 86.25 level emerge as the nearest level of support.

AUD/JPY Daily Chart

Source: IG, prepared by Richard Snow

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--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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