Early on Thursday, around 03:00 AM GMT, the Bank of Japan (BOJ) will announce routine monetary policy meeting decisions, as well as the quarterly BOJ Outlook Report, taken after a two-day brainstorming. Following the rate decision, BOJ Governor Haruhiko Kuroda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.
The Japanese central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero.
Although the BOJ isn’t expected to offer any change in its monetary policy, the latest hawkish moves of the major central banks and the inflation fears highlight today’s BOJ as the key event for the USD/JPY traders. Also increasing the importance of the BOJ announcements are the quarterly economic forecasts from the outlook report.
Ahead of the event, Standard Chartered said,
We expect it to keep the policy balance rate and 10Y yield target unchanged in July; the ruling LDP’s recent landslide election victory provides a strong mandate for PM Kishida and BoJ Governor Kuroda to maintain the dovish monetary policy stance. The BoJ has been under pressure as Japan’s inflation has risen above 2%. However, Kuroda has reaffirmed that the BoJ will maintain its dovish stance to support the economy. Separately, Japan will release national CPI data on 22 July. We expect CPI inflation to have eased to 2.4% YoY, supporting a dovish stance by the central bank. We think it is too early to say if Japan’s CPI has peaked, with core inflation having risen, indicating that inflationary pressure on the demand side is growing.
Additionally, FXStreet’s Valeria Bednarik said,
The USD/JPY pair has little chances of turning volatile, as the decision is already priced in. Policymakers may hint at tightening, although not in the near term. If the BOJ is set to change its monetary policy, it will likely be in the last quarter of the year. Nevertheless, a heads up could be enough to boost the local currency and push USD/JPY firmly down.
How could it affect the USD/JPY?
USD/JPY extends pullback from intraday high towards 138.00 as traders brace for the Bank of Japan (BOJ) monetary policy report. Downbeat US Treasury yields and the market’s fears of recession, not to forget aggressive central bank actions and covid woes, seem to exert downside pressure on the yen pair of late.
Japanese policymakers have already turned down the expectations of any major moves from the Bank of Japan (BOJ). However, the Japanese policymakers have recently shown their dislike for the yen’s weakness and volatility in the market, which in turn could join the broad inflation woes to push the BOJ towards dumping its age-old dovish bias. The same could quickly drag the USD/JPY pair towards an upward sloping support line from mid-June, near 137.50. However, the risk-off mood and firmer USD, as well as fewer odds of the BOJ’s hawkish mood, can keep the USD/JPY buyers hopeful.
Technically, USD/JPY remains firmer above a five-week-old support line and the 21-DMA, respectively around 137.50 and 136.70, which in turn could keep the pair buyers hopeful.
Key Notes
USD/JPY bulls move in on a critical hourly resistance
BOJ Preview: Still on hold, but for how long?
About BoJ Rate Decision
BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.
