Japanese yen sinks as BoJ holds steady

The Japanese yen has fallen sharply on Wednesday. In the European session, USD/JPY is trading at 129.38, up 0.96%. Earlier in the day, the yen fell as low as 131.58 but has pared some of today’s losses.

BOJ maintains policy

After a quiet start to the week,  the Japanese yen is showing strong volatility today. This follows the Bank of Japan’s policy meeting, where policy makers defied market expectations and made no changes to rate and yield curve control (YCC) settings. The markets had been on alert since the BoJ widened the band on 10-year JGBs in December, and there was speculation that the BoJ widen the band or even ditch its yield curve control altogether at today’s meeting. The central bank’s decision to stay on the sidelines sent the yen sliding as much as 2.6% before it recovered.

The BoJ forecasts for GDP and inflation didn’t show much change and were overshadowed by the BOJ’s non-move. The GDP forecast was downgraded from 2.0% to 1.9% for FY22 and 1.9% to 1.7% for FY23. The inflation outlook didn’t change much either  – the FY22 forecast was raised from 2.9% to 3.0% and the FY23 remained unchanged at 1.6%. The weak Japanese economy means that risks to growth are tilted to the downside and the BoJ is unlikely to make any policy tweaks to its ultra-loose policy before the new BOJ Governor takes over in April.

Japanese government bond yields have fallen sharply in response to the BOJ decision to keep YCC in place, retreating from the 0.50% cap and falling as low as 0.36%. The cap had been under attack in recent days, forcing the BOJ to spend trillions of yen to defend it. I would not be surprised to see yields move higher in the short term due to speculators again testing the BoJ resolve to defend the cap.


USD/JPY Technical

  • USD/JPY has pushed above resistance at 1.2940 and 131.33. The next resistance line is 133.28
  • 128.40 and 127.71 are providing support



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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.