USD/JPY refreshes multi-week lows, around 104.75 post- BoJ’s Kuroda

• USD/JPY met with some fresh supply at higher levels and dropped to fresh multi-week lows.
• A softer risk tone, the BoJ’s upbeat economic assessment underpinned the Japanese yen.
• The stage seems set for a slide further towards July swing lows, around the 104.20-15 area.

The USD/JPY pair retreated over 35 pips from the Asian session swing highs and dropped to a fresh multi-week low level of 104.78 in the last hour.

The pair failed to capitalize on its early uptick, instead met with some fresh supply near the 105.20 region and drifted into the negative territory for the fourth consecutive session. The early uptick was supported by the ongoing US dollar recovery move, supported by the Fed’s upbeat assessment of the economic recovery.

As was widely expected, the FOMC indicated that the benchmark rate will stay close to zero at least through 2023 but gave no signals of any additional stimulus to shore up a battered US economy. The Fed also upgraded its economic outlook and projected a much shallower contraction in 2020. The unemployment rate forecasts were also revised lower through the horizon, which, in turn, prompted some USD short-covering move.

The supporting factor, to a larger extent, was negated by a turnaround in the global risk sentiment, which benefitted the safe-haven Japanese yen (JPY). Adding to this, the Bank of Japan’s less gloomy view on the domestic economy further drove some flows toward the JPY and prompted some fresh selling around the USD/JPY pair.

However, dovish comments by the BoJ Governor Haruhiko Kuroda extended some support to the USD/JPY pair and helped limit any further losses, at least for now. In the post-meeting press conference, Kuroda said that the central bank would not hesitate to add monetary easing if necessary with the importance of sustaining virtuous economic cycle in mind.

It will now be interesting to see if the USD/JPY pair is able to find any support at lower levels or prolong its recent bearish trajectory, back towards testing late July swing lows support near the 104.20-15 region.

Technical levels to watch