Yen extends losses after summary of opinions

The Japanese yen continues to lose ground this week and is in negative territory on Wednesday. In the European session, USD/JPY is trading at 134.11, up 0.49%.

Post-Christmas holiday trading remains thin, but USD/JPY has made steady gains and climbed 1% this week. The US dollar has recovered somewhat after last Tuesday’s slide when it fell a staggering 3.8% after the BoJ widened its yield curve band. The move blindsided the markets, which had not expected any major policy moves prior to the end of Governor Kuroda’s term in April.

Summary of Opinions – no exit from loose policy

Investors were all ears as the BoJ released today the summary of opinions from last week’s dramatic meeting. The summary of opinions showed that several of the nine board members said that the tweak to yield control was aimed at enhancing the current stimulus programme rather than ending it. This reiterated what Governor Kuroda stated in a press conference after the meeting. Still, speculation remains high that the BoJ could take further steps that tighten policy, and even exit the Bank’s ultra-loose policy, especially with inflation running at a 40-year high.

The summary of opinions indicated that members discussed rising inflation and the possibility that higher wages would remove the risk of a return to deflation. The BoJ has been focused on wages, arguing that strong wage growth will ensure that inflation is sustainable, as opposed to inflation that is driven by higher costs for energy and raw materials. The government is also making wages a top priority, and there are indications that major companies and labour unions will negotiate higher wages in the spring. If the BoJ sees that wages are rising it could raise its yield curve control target, which is currently around 0% for 10-year bonds. The BoJ will likely be back in the headlines shortly, with its next meeting on Jan. 17^th and 18^th.

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USD/JPY Technical

•  USD/JPY is testing resistance at 134.12. Above, there is resistance at 134.82
• There is support at 133.25 and 132.29

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