Friday, February 23, 2018
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USD/JPY drops 30 pips after BOJ keeps rates and price outlook unchanged
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  • USD/JPY drops from 110.85 to 110.54 after BOJ decision.
  • The central bank keeps rates unchanged as expected.
  • Keeps price outlook unchanged.

The Japanese Yen found bids after the Bank of Japan  (BOJ) kept policy ratesand price outlook unchanged.

The USD/JPY pair hit a low of 110.54 immediately after the decision was out and was last seen trading at 110.68 levels.

Key points

  • Sees economy expanding 1.4% in the financial year (FY) 2018 and 0.7% in FY2019.
  • Promises to buy JGBs more-or-less at the current pace, JPY 80 trillion annually.
  • Inflation to continue to increase towards 2%, currently sideways, @1%.
  • Raises view on current CPI, inflation expectations.
  • The exchange rate and commodity prices present both upside and downside risk to inflation expectations.
  • The growth pace in fiscal year 2019 is projected to decelerate due to a cyclical slowdown in business fixed investment & effects of the scheduled consumption tax hike.
  • FY2017 core CPI forecast is 0.8%.

The decision was largely in line with expectations. Still, the drop in the USD/JPY to 110.54 indicates markets had positioned for a more dovish commentary on inflation. That said, the downside is likely being capped due to a projected slowdown in 2019 and due to expectations that Governor Kuroda would reiterate central bank’s resolve to maintain quantitative easing.

USD/JPY Technical Levels

A move above 111.03 (session high) would expose resistance at 111.48 (last week’s high) and 111.74 (200-day MA). On the other hand, a break below 110.54 (session low) could yield 110.19 (last week’s low) and 110.00 (zero levels).

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