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Japanese Yen Pares Gains after BOJ Meeting

The Japanese yen is slightly lower in the European session on Tuesday. USD/JPY fell 0.54% after today’s BoJ policy meeting but has pared most of those gains and is trading at 147.82, down 0.18%.

Bank of Japan stays pat

As expected, the BoJ maintained its policy settings at today’s meeting. In a unanimous decision, the BoJ board kept interest rates at -0.1% and maintained its yield curve control policy of an upper limit of 1% as a reference for 10-year Japanese government bonds. The BoJ lowered its core inflation forecast for fiscal 2024 to 2.4%, compared to 2.8% in the October forecast.

The BoJ played it safe at today’s meeting, keeping policy intact but lowering the inflation forecast. The BoJ doesn’t appear in a rush to tighten policy, but investors have been bitten before and are aware that the BoJ has a knack for surprising the markets. Governor Ueda has been hinting at a shift in policy, and the Bank’s negative rates seem out of place in a world of higher inflation.

Ueda has insisted that high inflation is due to cost-push factors and that he won’t tighten policy until wage growth increases, as this would provide evidence that inflation is driven by domestic demand and is sustainable at 2%. National wage talks commence in March and if it appears that employee wages will rise, the BoJ could make a major policy announcement in April or in June.

Governor Ueda stated in a follow-up press conference that the probability of reaching the 2% sustainable inflation target is rising and there is evidence of a positive wage-inflation cycle. The BoJ may not have made any changes at today’s meeting, but Ueda’s comments are slight hints that a policy change is only a question of time.

USD/JPY Technical

  • USD/JPY has pushed through several support levels and is testing support at 146.98
  • There is resistance at 148.44 and 148.76

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