he BoJ monetary policy meeting today when as we had expected. The BoJ held policy mixed unchanged while downgrading inflation and upgrading growth forecasts. The softer inflation forecast should take away some of the bullish moment in the JPY. Traders has expected that the limited effectiveness of the BoJ policy combined with improve growth outlook would force the central banks to marginally shift bias. However, the BoJ actions today indicated a strong resistance to this idea.
The inability for the BoJ yet steadfast comment to reach there 2% inflation target indicates a lag between Japan and other G10 central banks. Sudden reversal in US front end yields have helped narrow the US/JP interest rate differential pushing the rate sensitive USDJPY lower. However, the closer we get to September and the fed likely move toward the reduction of its 4.5 trillion balance sheet indicated that the next move in USDJPY will be higher. With 10 year rates targeting 2.45% we can see USDJPY retesting 114.45 resistance by September.
By Peter Rosenstreich