The USD/JPY pair drifted upwards on Tuesday morning after the relatively hawkish statement by the Bank of Japan. It is trading at 114.75, which is higher than last week’s low of 113.50.
Bank of Japan decision
The BOJ concluded its two-day monetary policy meeting on Tuesday. In its report, the bank decision was in line with what most analysts were expecting.
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The BOJ decided to leave interest rates unchanged at -0.10% where they have been in the past few years. The officials also decided to leave its bond yield target and asset purchases program intact.
Still, the statement had a major change in that for the first time, officials predicted a situation where the country’s inflation moves above its 2% target.
Japan has experienced a stubbornly low inflation rate in the past few years. Analysts cite a number of factors. For example, many people in Japan are highly price-sensitive, which pushes retailers to fear hiking interest rates.
In addition, the country’s demographics don’t help. While Japan has a low unemployment rate, most people are savers. This is in contrast to the United States where people value spending. Additionally, the ageing population has low spending needs than other countries with young populations.
The key driver for the USD/JPY pair lately has been the ongoing divergence between the Bank of Japan and the Federal Reserve. The BOJ has hinted that the easy money policies are here to stay. On the other hand, the Fed has hinted that it will end its quantitative easing and then start hiking rates.
Still, some analysts believe that the BOJ will also start to embrace a hawkish tone in the near term as the country’s economy reopens.
The four-hour chart shows that the USD/JPY pair rose to the highest level on January 12th after the BOJ decision. It has risen by about 1.12% above the lowest level last week. The pair has risen above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has kept rising.
Therefore, the path of the least resistance for the USD/JPY pair is to the upside, with the next level to watch being at 115.50.
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