Bank of Japan, Japanese Yen, Monetary Policy – Talking Points
- Bank of Japan (BoJ) stands firm on super easy policy, rates unchanged
- Covid aid program extended for third time as recovery remains rocky
- USD/JPY largely unfazed on decision, holds at 78.6% Fibonacci level
The Bank of Japan (BoJ) kept its super easy policy unchanged Friday, diverging from the Federal Reserve’s hawkish signaling earlier this week. The Japanese central bank held its negative interest rate firm, while also holding steady its quantitative easing program. While the announcement is basically void of any material shift in policy, the special Covid program was extended to March 2022. An expected move given the slow economic recovery.
The extension to the bank’s Covid aid program marks the third lengthening aimed at combating the impact of the ongoing pandemic. Japan has lagged behind in its fight against Covid, trailing other major developed economies like the United States and Australia. Still, the island nation is set to ease social distancing measures in Tokyo on Sunday. The lag in economic recovery has put corporate financing under stress, with the BoJ responding by announcing a new loan measure, expected later this year.
The state of emergency’s expiration this Sunday comes a month before the 2021 Olympic Games, an event many have suggested should be cancelled given the risks posed to Japan’s increasingly dire Covid situation. Earlier Friday, Japan’s consumer price index (CPI) crossed the wires at -0.1%, beating the expected consensus forecast of -0.2%. Still, the smaller-than-expected drop in inflation is unlikely to sway BoJ policy makers’ views on meeting the 2% target in the near future. That said, super easy policy is likely to continue.
USD/JPY Technical Breakdown
The Japanese Yen continues to falter against the US Dollar this month, extending weakness seen in May. USD/JPY was on track to overtake the March swing high before pulling back overnight to the 78.6% Fibonacci retracement level, which appears to be providing support to the currency pair.
A break below the current Fib level could see prices fall to trendline support. The 26-day Exponential Moving Average (EMA) looks likely to provide a layer of confluent support near the 61.8% Fib. Alternatively, the March high may put some overhead pressure on price should USD/JPY rise in the coming days.
USD/JPY Daily Chart
Chart created with TradingView
Japanese Yen TRADING RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
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