The Bank of Japan has decided to enhance the flexibility of its yield curve control. While keeping the 10-year Japanese government bond (JGB) yields target close to zero percent, it has set an upper reference bound of 1.0 percent. The Bank plans to manage these yields primarily through large-scale JGB purchases and agile market operations, while maintaining a negative short-term policy interest rate of -0.1%. For other asset purchases, limits have been set for ETFs and J-REITs, and the Bank aims to revert corporate bond holdings to pre-COVID levels. Amid heightened uncertainties, the Bank has adjusted its inflation outlook due to factors such as increased import prices and rising oil costs. The Bank’s goal is to achieve a 2 percent inflation rate and foster wage growth, continuing with its Quantitative and Qualitative Monetary Easing (QQE) strategy. It commits to maintaining this approach until the CPI growth exceeds and remains above the 2 percent target, with readiness to introduce more easing measures if needed.
From a technical perspective, USD/JPY is in an uptrend (upward channel) where the price is oscillating between the two parallel lines. As of the most recent data, the price is near the top of this channel, which could act as resistance, considering that is on the progress of making a triple top with this year and last year high as a reference price. The RSI is hovering around 80 but the new flexibility approach of the Bank of Japan can possibly lead USD/JPY to new highs. Even one of the most powerful central bank cannot do that much in term of protecting the value of its currency without capital controls when its reserves are limited. The Yen could appreciate in case of reversal carry trades and risk appetite reduction.
155 could be the next relevant resistance if a breakout above 151.8 would materialize. The framework would continue to be bullish as long that the pair will trade in the bullish channel. Short term traders would try to capitalize on retracements to the lower side of the channel.
