The USD/JPY pair rallied before and after the BOJ’s decision on the interest rate.
The Bank left the interest rate, QE and yield curve management program unchanged.
It also promised to intervene if the situation deteriorated.
The USD/JPY rose 0.15% as traders responded to the Bank of Japan’s (BOJ) interest rate decision. It is trading at 104.46, slightly above yesterday’s low of 104.10.
USD/JPY rises following the BOJ’s decision
Interest rate decision of the Bank of Japan
The Bank of Japan was one of the most active central banks in the market this year. Although it did not lower interest rates like its counterparts, it used other instruments to support the world’s third largest economy.
These measures, together with those of the Japanese government, have helped Japan weather the worst recession in decades. The economy contracted by 7.9% in the second quarter, which was better than in comparable countries such as the United States, the euro zone and the United Kingdom.
Today, the Bank’s Monetary Policy Committee announced its interest rate decision. The bank decided to leave interest rates unchanged at -0.10%, in line with the expectations of most analysts surveyed by Reuters. It also left its quantitative easing program and yield curve management unchanged.
First of all, quantitative easing is a process whereby the bank buys government bonds and other types of bonds. This helps to provide liquidity and make all government borrowing affordable. In fact, this program has resulted in the Bank’s balance sheet rising from ¥569 trillion in September last year to ¥689 trillion today.
The management of the yield curve, on the other hand, is aimed at controlling long-term interest rates. In this case, the Bank has set a target of -0.1% on ten-year government bonds.
In his statement, Hurohiko Kuroda, the Bank’s Governor, stated that the Bank is committed to supporting the economy if the global economic situation deteriorates. To achieve this, he said that the bank would leave its instruments unchanged and possibly lower them if the situation deteriorates. He said:
“The Bank will continue quantitative and qualitative monetary easing with yield curve management to achieve the 2% price stability target, as long as necessary to maintain the target in a stable manner.
Meanwhile, the Bank of Japan expects the economy to deteriorate. It now expects the economy to contract by 5.6% to 5.3% this year. This is worse than the previous range of 5.7% to 4.5%. It also expects inflation to fall by 0.7% to 0.5%, which is below the previous estimate of 0.6% to 0.4%.
Technical outlook USD/JPY
USD/JPY technical table
On the four-hour chart, we can see that the USD/JPY pair has recovered today. It has moved from yesterday’s low of 104.13 to the current level of 104.47. In addition, the pair has formed an inverted cup and handle pattern, which is shown in black. It is still slightly below the 25-day and 15-day exponential moving averages. Most importantly, it is in the fifth wave of the Elliot wave pattern. As such, I suspect that these gains will be limited and that the pair will resume its downtrend in the near future.