This report leak yesterday changed everything. What looked to be a straightforward BOJ decision day was then made more complicated and basically confirmed that we were to see something substantial today. And boy, did it deliver.
The initial reaction earlier was for a weaker yen as the BOJ announced no change to the yield curve control band of +/- 0.50% previously. But the central bank did adjust the settings a bit by shifting the hard ceiling from 0.50% to 1.00% instead.
There was perhaps also a buy the rumour, sell the fact play in the yen with the spike in USD/JPY erasing the drop from the report above briefly. That was followed by a whipsaw back down as the volatility swings continue, though price is now settling lower as the yen holds higher on the day.
USDJPY 1-minute chart
The headlines were a little confusing but as the dust settles, it seems like the BOJ is at least allowing for some shifts to its existing policy stance. The question now though is what really is their appetite?
The hard ceiling for 10-year JGB yields may be drawn at 1.00% but that doesn’t mean the central bank will allow yields to run up to that threshold in a short period of time.
The adjustment will be a teething process and at the same time, will be highly dependent on economic data – especially inflation numbers.
As such, it isn’t quite a straightforward case of this being where the BOJ begins a major pivot on policy and the yen going on a tear in response. The gains will likely be more measured and will come alongside a gradual shift higher in 10-year JGB yields. But again, this process is likely to take time.
For now though, USD/JPY is looking to settle lower with a streak of five straight days of losses and the policy narratives between the Fed and BOJ this week is a main reason why. Looking at the daily chart:
USD/JPY daily chart
There is scope for that downside to extend further to the monthly lows of just below the 138.00 mark. Adding to that will be the 100-day moving average (red line) at 137.36 next before the 200-day moving average (blue line) adds a secondary key support layer at 136.67 currently.