- The BOJ took a small step away from its years of ultra-loose monetary policy.
- Rising Japanese yields are putting upward pressure on the yen.
- Investors await the US core PCE price index report.
Today’s USD/JPY outlook is bearish. In Tokyo, the yen experienced fluctuations and strengthened on Friday, while stocks and bonds declined. This came after the Bank of Japan took a small step away from its years of ultra-loose monetary policy.
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Although the central bank maintained its super-low interest rates, it slightly shifted regarding yield curve control. Notably, the bank declared that its previous 0.5% cap on 10-year government bond yields would now be considered a “reference.” Moreover, it offered to purchase such bonds at 1% in the market.
This move by the Bank of Japan is part of a notable week for central banks worldwide. Recent interest rate hikes in the United States and Europe have marked the culmination of an exceptionally aggressive tightening cycle.
Additionally, the implications of this shift could be significant for global money flows. The yen, attractive for borrowing due to its low cost, has been a crucial source of capital market funding for years. However, rising Japanese yields now put upward pressure on the yen just as global interest rates appear to peak.
In fact, ten-year Japanese government bond yields reached a nine-year high of 0.575%. Moreover, the Nikkei index dropped by 0.4%, though financial stocks surged in anticipation of higher rates.
The yen had been rising for several days in anticipation of the Bank of Japan’s actions and experienced volatile trading after the announcement. Eventually, it climbed to a week-high of 138.05 against the dollar.
USD/JPY key events today
Investors will now shift their focus to inflation data from the US. The core PCE price index is an important figure the Fed uses to gauge inflation.
USD/JPY technical outlook: Bears breach 140.01 support.
On the charts, the bearish bias for USD/JPY strengthened when the price respected the 30-SMA resistance, breaking below the 140.01 support level. Additionally, this sharp move saw the RSI cross below 50, indicating strong bearish momentum.
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After such a move, we might see the price recover slightly to retest the 140.01 level as resistance. However, with the bearish bias, the price will likely bounce lower to the 138.05 support.
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