BOJ reaffirms policy, yen at 136

Kuroda pledges to maintain easy policy

The Japanese yen is one of those currencies that keeps investors on its toes, and it has certainly lived up to its billing in recent weeks. USD/JPY has shot up 5.79% in the month of June and is back above the 136.00 line. BoJ Core CPI, the central bank’s preferred inflation gauge, ticked upwards to 1.5% in May, up from 1.4% prior and matching the forecast.

There is no mystery behind the yen’s sharp depreciation of some 17% in 2022. The currency has been at the mercy of the US/Japan rate differential, which has continued to widen. The Federal Reserve is in the midst of an aggressive rate-tightening cycle, with the Fed delivering a massive 0.75% increase at its last meeting. The Bank of Japan continues to take an opposite approach, that of an ultra-accommodative policy. The BoJ has maintained this stance at a time when other central banks are tightening, in order to boost the fragile Japanese economy. While other major economies are struggling with surging inflation, Japan’s inflation is around 2% – quite low but nonetheless on the rise after some 15 years of deflation.

Governor Kuroda reiterated on Wednesday that the BoJ would maintain an accommodative policy, insisting that the increase was mostly a result of higher energy prices. Kuroda has said in the past that the present bout of inflation is temporary and that the BoJ would not change policy until inflation was anchored by higher domestic demand and an acceleration in wage growth. With neither of those criteria likely to occur anytime soon, we can expect the BoJ to continue to tenaciously defend its yield curve control and do little more than jawbone about the exchange rate. This does not bode well for the yen, which could continue its sharp slide and fall below the 140.00 line.

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USD/JPY Technical

• USD/JPY faces resistance at 1.3654 and 1.3785
• There is support at 1.3540 and 1.3409

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