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USD/JPY suffers a minor taper tantrum – higher inflation needed for a lasting move

The Bank of Japan stands out among central banks in developed countries. They are on the extreme dovish end, buying bonds at a rapid clip with no end in sight. That keeps the yen under pressure against its peers, with an occasional safe-haven flow.

But when we have a change in the fundamental of the BOJ’s dovishness, the yen reacts.

The Tokyo-based institution announced it would cut purchases of long-term 10-25 year debt from 200 billion to 190 billion yen and for the very long-term debt, above 25 years, from 90 to 80 billion yen.

The decision is relatively minor, but the mere move in the direction of cutting stimulus is taking its toll on the pair. USD/JPY dropped to 112.50 before bouncing back to 112.70 at the time of writing. It is nearly 70 pips lower on the day.

While the number of pips isn’t huge, it is important to remember that USD/JPY has been a very slow-moving pair. This knee-jerk reaction is the biggest move in a month.

Will dollar/yen continue falling? A lot depends on bigger announcements by Kuroda and co. which in turn depend on price development. Despite huge efforts to lift inflation, it remains very low, no matter how it is sliced and diced.

More:  USD/JPY entrenched in range – Forecast Jan. 8-12 2018

Here are the recent moves on the hourly chart:

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.