JPY Well Bid Following BOJ

The Japanese Yen is surging higher across the board today on the back of a surprising tweaking of the BOJ’s yield curve target rate. At the December meeting overnight, the BOJ widened the band by 0.25%. JGB yields will now be allowed to trade as higher as 0.5% with many in the market viewing this adjustment as paving the way for upcoming policy normalisation.

Ahead of the meeting, not one of the 47 economists polled by Bloomberg anticipated the adjustment, well-explaining the huge moves we’ve seen across the FX space. However, Kuroda was keen to insist that the move didn’t amount to a rate. At the press conference Kuroda explained “This isn’t a rate hike… Although today’s measures will widen the yield band, we believe that the effects of monetary easing, starting with yield curve control, will spread more smoothly through corporate finance and other means as a result.”

BOJ Policy Normalisation Coming?

Interestingly, this action comes on the back of reports over the weekend suggesting the government is considering revising its 10 year-old inflation accord with the BOJ to allow for more flexibility. Clearly, it seems the tide is starting to turn and as many other central banks pivot or begin to think about pivot on tightening, the prospect of BOJ policy normalisation holds the power to drive further seismic shifts in FX prices.

Technical Views

USDJPY

The reversal lower in USDJPY has seen the market breaking down through the rising channel and through the last key support at the 139.33 level. Price is now testing the 131.36 level support and, with momentum studies bearish and the retail market heavily long, the focus is on a continuation lower near-term. Below the 131.36 level 126.93 is the next support to note.