The USD/JPY pair jumped to the highest level in over 20 years as the divergence between the Federal Reserve and the Bank of Japan. It is trading at 130.41, which is about 27% above the lowest level in 2021. The EUR/JPY and GBP/JPY pairs also rose.
BOJ decision
The BOJ concluded its two-day meeting and sounded more dovish as ever. In a statement, the Haruhiko Kuroda-led bank said that it will maintain its interest rates unchanged at -0.10%, where they have been in the past few years.
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The BOJ also decided to continue with its massive stimulus package. It will continue buying unlimited amounts of 10-year government bonds to defend an implicit 0.25% cap around its zero target.
The extension of the asset purchases means that the bank will continue expanding its balance sheet. The most recent data shows that the bank has a balance sheet of over $8 trillion, which is substantially higher than Japan’s GDP of less than $5 trillion.
Japan, like most other large exporters, prefer a weaker local currency because it makes the price of their products cheaper. However, there are concerns that an extremely weaker yen will lead to higher inflation since Japan is a leading energy importer. It is also affecting many small companies that employ most people in Japan.
Therefore, there are concerns that Japan’s Ministry of finance will intervene and order the BOJ to start normalizing policy. If this happens, it will be the first time that the ministry has intervened since 1998.
The BOJ expects that the core consumer inflation will rise to 1.9% this year and then moderate to 1.1% in 2023 and 2024. This inflation is substantially lower than in most countries like the United States and the UK.
USD/JPY prediction
The weekly chart shows that the USD/JPY pair has been in a strong bullish trend as the divergence between the Fed and BOJ widened. The pair has risen in the past 8 consecutive weeks and has reached the highest level since 2002.
The bullish trend gained steam when the pair moved above the key resistance at 125.86, which was the highest level on June 2015. It remains above the 25-week and 50-week moving averages while the Relative Strength Index (RSI) has soared to the extreme overbought level of 88. Therefore, there is a likelihood that the pair will have a pullback and retest the support at 125.86.
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Source: https://invezz.com/news/2022/04/28/usd-jpy-prediction-extremely-overbought-after-the-dovish-boj/