USD/JPY dips on possible policy tweak

The Japanese yen has started the week in positive territory. In the European session, USD/JPY is trading at 136.22, down 0.38%. The yen is coming off a busy week, as USD/JPY traded in a 350-point range but closed the week almost unchanged.

Will Japan change its inflation stance?

The markets are keeping an eye on April 2023, when Bank of Japan Governor Kuroda retires and a new governor is appointed. This has raised speculation that the changing of the guard could lead to policy changes at the bank. There was a report today that the BoJ and the government could revise their decade-old statement, which pledges to achieve the 2% inflation target “at the earliest date possible”. This has resulted in the BoJ maintaining its radical stimulus programme and keeping interest rates ultra-low, at a time when other major central banks are busy raising rates in order to curb inflation.

This policy was initiated in 2013, when Japan’s economy was marked by deflation. With consumer prices rising and a weak yen contributing to inflation, the statement could be out of date and the new BoJ governor may feel the timing is right to revise the statement, perhaps making the inflation target more flexible. There is rising speculation that the new governor could tweak yield curve control, which has kept a cap on 10-year Japan’s government bonds and fueled the yen’s sharp descent this year. For now, however, it is likely to be business as usual – the BoJ winds up a two-day meeting on Tuesday and is not expected to make any changes to monetary policy.

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USD/JPY Technical

• USD/JPY is testing support at 136.48. This is followed by support at 134.78
• There is resistance at 137.64 and 138.43

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