Early on Thursday, around 03:00 AM GMT, the Bank of Japan (BOJ) will announce routine monetary policy meeting decisions 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 chatters over the BOJ’s formal announcement of the market intervention to defend the yen.
Ahead of the event, Standard Chartered said,
We expect the central bank to keep the policy balance rate unchanged in September, unlike other central banks, which have rapidly raised rates on inflation concerns. The BoJ aims to sustainably achieve its price stability target of 2%. Inflation has been driven by supply shocks and a weak JPY; the central bank has repeatedly said that cost-push inflation is undesirable given the negative impact on the economy. Also, government debt is high at close to 260% of GDP. In such a scenario, rate hikes would weigh on the fiscal balance and hinder fiscal spending for economic growth.
Additionally, FXStreet’s Valeria Bednarik said,
The USD/JPY pair has been consolidating gains after reaching 144.98 on September 7, without technical signs of long-term bullish exhaustion. Should policymakers hint at some form of tightening, there’s still little room for the JPY to add. Market players would need action to react to the event rather than promises.
How could it affect the USD/JPY?
USD/JPY prints mild gains around 144.00 as risk-aversion propels the US dollar and the Treasury yields, up 0.20% near 144.30 by the press time of Thursday’s Asian session. It should, however, be noted that the yen price remains cautious during the four-day uptrend as traders await the BOJ.
Japanese policymakers have already turned down the expectations of any major moves from the Bank of Japan (BOJ). However, the previous day’s announcement of bond-buying and talks of the town supporting the official push for market intervention keep the USD/JPY traders hopeful of a pullback.
The same could quickly drag the USD/JPY pair towards an upward-sloping support line from early August, near 143.80. However, the risk-off mood and firmer USD, as well as fewer odds of the BOJ’s hawkish mood, are likely to favor the USD/JPY buyers.
Technically, USD/JPY bulls need a clear upside break of the 145.00 threshold to keep reins while a downside break of the six-week-old support line, near 143.80, won’t hesitate to recall sellers as the RSI is nearly overbought.
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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.