USD/JPY extends gains post-BoJ meeting

• Bank of Japan meeting weighing on yen
• JP Morgan buys First Republic assets

USD/JPY continues to rally and is trading at 136.84, up 0.40%.

BoJ signals change is coming

The Bank of Japan didn’t change any policy settings at Friday’s meeting, which was the first to be chaired by New Governor Kazuo Ueda. The yen took a tumble of 1.3% and the downward spiral has continued on Monday, with USD/JPY rising as high as 136.98. Investors may have been disappointed that the Ueda didn’t make any changes, but on closer examination, the BoJ provided some hints that change is coming which could explain the yen’s sharp fall.

The key signal was the removal of its forward guidance pledge to maintain rates at “current or lower levels”. Ueda stated last week that interest rates could rise if wages and inflation moved higher and at the meeting he announced a policy review. This shows that Ueda is open to change, although the review will take between a year and 18 months.  The new Governor didn’t do anything dramatic, but he showed flexibility to making changes if warranted by economic conditions. Similar to the case with the ECB and the Fed, forward guidance has been ditched in favor of policy decisions at each meeting, based on the data.

In the US, First Republic Bank is again in the headlines. After US regulators seized the ailing bank, they announced that JP Morgan had acquired all of First Republic’s deposits. An attempt to convince large US banks to throw First Republic a second lifeline failed, making it the third US bank to collapse since March. Interestingly, JP Morgan CEO said just one month ago that the current banking crisis would have repercussions for “years to come”.

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USD/JPY Technical

• USD/JPY faces resistance at 137.57 and 138.84
• 135.30 and 134.03 are providing support

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