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  • The BoJ is under criticism for prolonging its ultra-loose policy.
  • BoJ policy is severely hurting commercial bank margins.
  • Annual core consumer inflation exceeded the BOJ’s objective of 2% for the sixth consecutive month in September.

Today’s USD/JPY forecast is bearish. Yuri Okina, a member of a significant government panel and potential future BOJ executive, stated on Friday that the Bank of Japan (BOJ) must modify its inflation target and gradually end a drastic yield-cap policy. This would reduce the rising costs of extended monetary easing and support the yen.

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The BOJ maintains its yield curve control (YCC) policy, which stipulates that it should set short-term interest rates at -0.1% and set a cap on the yield on 10-year bonds at about 0%. This policy makes it an outlier in a global trend of central banks tightening monetary policy.

Critics claim that the negative short-term rate and the BOJ’s tenacious defense of its yield cap have distorted the yield curve’s shape and severely hurt the margins of commercial banks.

Additionally, she noted that the BOJ needs to redefine its 2% inflation target from its current “rigid” definition, which may require it to maintain ultra-low rates for longer than is ideal, into a long-term target with some wiggle room.

In September, annual core consumer inflation exceeded the BOJ’s objective of 2% for the sixth consecutive month. The weaker yen, supported partly by the central bank’s low-rate policy, increased the cost of living for households and the price of imported products.

USD/JPY key events today

Investors will pay close attention to Japan’s GDP for Q3, which is expected to contract from the previous 0.9% to 0.3%.

USD/JPY technical forecast: Strong bearish momentum

USD/JPY forecast

The 4-hour chart shows the price trading far below the 30-SMA and the RSI in the oversold region. This is a sign that bears are in control and have a lot of momentum. The price steeply declined, breaking right through the 145.03 key level. It also broke below the 142.05 and 140.02 support levels.

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At the moment, the price has paused below the 140.02 level. Bulls might return at this point for a retracement as the price is oversold. The price might also consolidate at this level before taking out the 138.03 support as the bullish bias is strong.

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