The Japanese yen jumped higher overnight as the BoJ announced trimming longer-dated JGB purchases. This decision was viewed by the market as the first small step towards the monetary policy normalization in the country at a time when other major central banks are about to start reducing stimulus.
In a knee-jerk reaction, the USDJPY pair dropped 0.5% and touched the low at 112.50, bouncing back from a two-week high of 113.40 reached yesterday. The local rally was like a rehearsal for more significant steps from the local monetary authorities. However, the BoJ decision should be interpreted as a prelude to a policy change. In our view, such expectations are premature as inflation in Japan is still low.
So the JPY’s bullish potential looks limited. It may take quite a lot of time before the regulator even starts to seriously think about normalization. Another hurdle for the Japanese currency is the widespread “risk-on” mood on the back of global economic growth and amid signs of reduction in tensions on the Korean peninsula.
In the short-term, the pair needs to regain the 113.00 hurdle which is now the immediate major resistance. A break above 113.20 will alleviate the downside pressure and introduce scope to the 113.40 two-week high.
In a knee-jerk reaction, the USDJPY pair dropped 0.5% and touched the low at 112.50, bouncing back from a two-week high of 113.40 reached yesterday. The local rally was like a rehearsal for more significant steps from the local monetary authorities. However, the BoJ decision should be interpreted as a prelude to a policy change. In our view, such expectations are premature as inflation in Japan is still low.
So the JPY’s bullish potential looks limited. It may take quite a lot of time before the regulator even starts to seriously think about normalization. Another hurdle for the Japanese currency is the widespread “risk-on” mood on the back of global economic growth and amid signs of reduction in tensions on the Korean peninsula.
In the short-term, the pair needs to regain the 113.00 hurdle which is now the immediate major resistance. A break above 113.20 will alleviate the downside pressure and introduce scope to the 113.40 two-week high.