BOJ Inflation Comments Drive Yen Rally

JPY Rallying Post-BOJOn the back of the latest BOJ meeting overnight, the Japanese Yen is strengthening a little across early European trading on Tuesday. The BOJ held its headline policy unchanged, with rates remaining in negative territory, as expected. However, there were some hints in the outlook with regard to inflation that appear to have piqued bulls’ interest.BOJ Price Target in ViewOn inflation, the BOJ noted that it felt more confident in achieving its price stability target of 2% sustainably. The BOJ has previously noted this as a key criterion for any shift in policy and with its goal now in sight, traders sense that the bank is lining up for a potential policy shift in H1. Indeed, the bank made these comments on inflation while reducing its CPI outlook for fiscal year 2024 to 2.4% from 2.8% prior.BOJ Mulling Future RatesWhile the BOJ offered little in the way of new forward guidance in the statement, there were some comments during the post-meeting press conference which have added further support for JPY. Governor Ueda confirmed that the prospect of seeing trend inflation hit 2% is “gradually heightening”. When questioned on whether the BOJ has a future rates path in mind, Ueda said the bank is confident it can avoid “the risk of a severe, irregular policy shift.”Tightening ComingThe takeaway from this month’s meeting is that the prospect of a shift in BOJ policy is growing more real. As such, any data or commentary supporting this narrative should keep JPY supported near-term while traders look towards the next meeting and a firmer signal on timing.Technical ViewsUSDJPYFor now, the rally in USDJPY has stalled into the 148.98 level resistance. While some correction from here is feasible, the 145 level will be key to watch. While that support holds, focus remains on a further push higher and a test of the broken bull trend line/151.81 area next.

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