Overview of the BoJ Monetary Policy Actions

1 авг.

At the start of 2024, the USDJPY was trading along the 141 price level, after it had retraced from the 2023’s high of 152.

This was due to weakness in the US dollar as there was increasing speculation within the markets that the US Federal Reserve was likely to start cutting US interest rates by early 2024.

But as the speculation grew that there could be less rate cuts than initially anticipated for the US. This saw a rapid strengthening of the US Dollar, which in turn, saw the USDJPY climb steadily to retest the previous high of 152 in March 2024.

Even when the BoJ ended their negative interest rate policy by hiking rates for the first time in 17 years on the 19th of March, they also abandoned their yield-curve control and ended most of their asset purchases aimed at policy easing.

But, there was little to no effect on strengthening the Yen, as markets viewed that despite what was done, the policymakers lacked commitment to this path of monetary tightening. As such, the Yen continued to weaken, with the USDJPY breaking through the 152 price level in April to record a new high of 160.

Which led to BoJ intervening twice in close succession, taking the USDJPY from 160 down to the 153 price point. But as what we have seen from all the previous currency interventions the USDJPY bounced back to not only reclaim the previous high but form new highs at 162.

When the USDJPY got to the 162 price level, the BoJ intervened again to bring prices down to 158.

Paired with the weakness of the US dollar due to the US CPI reaching 3% and increasing speculations that the Federal Reserve was ready to start cutting rates in September, the USDJPY broke the bullish trendline to continue trading lower.

This week, the BoJ hiked rates to 0.25% and indicated plans to significantly reduce its bond-buying program over the next couple of years.

This led to the USDJPY breaking below the 152 price level (which is crucial as it was the level where the BoJ intervened back in October 2022, and where the price started reversing from in November 2023) we look for the USDJPY to continue trading lower down to the 147 key support level (and previous swing level).

Once the price has reached the 147 level, the next move will likely depend on the volatility of the DXY and the interest rate decisions from the US Federal Reserve.