USD/JPY rises as BoJ stays the course

• Bank of Japan maintains interest rate and yield curve control policy
• Japanese yen falls below 141

The Japanese yen is under pressure and has lost ground on Friday. In the European session, USD/JPY is trading at 141.01, up 0.53%.

Bank of Japan maintains policy

The Bank of Japan made no changes to its policy settings at its policy meeting. This was expected, but the yen still fell lower as the policy statement was dovish. The statement voiced concern about “extremely high uncertainties surrounding economies and financial markets at home and abroad” and said it would “patiently continue with monetary easing”.

The BoJ remains concerned about inflation, in particular the core rate, which is above 3%, higher than the Bank’s 2% target. Wage inflation is expected to move higher as Japanese major companies agreed to large pay raises for employees in March.

The BoJ is unlikely to tighten interest rates anytime soon, but there is speculation that it could tweak its yield curve control (YCC) policy as early as July. Governor Ueda sidestepped a question about YCC after the meeting, saying that the central bank would have to balance the “merits and demerits” of the policy. In December, the BoJ shocked the markets when it tweaked YCC and widened the cap on 10-year government bonds from 0.25% to 0.50%, which sent the yen sharply higher. With the yen trading near 7-month lows, another tweak is a reasonable possibility.

The Federal Reserve decision on Wednesday was a “hawkish hold”, as the Fed took a pause after 10 straight increases while signalling that it was planning two more rate increases this year. The benchmark rate, currently at 5%-5.25%, is widely considered to be in restrictive territory, but Fed Chair Powell reiterated in his press conference that the inflation battle “has a long way to go”.

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USD/JPY Technical

• USD/JPY is testing resistance at 141.21.  Above, there is resistance at 142.13
• There is support at 140.29 and 139.53

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