USD/JPY Fundamental Daily Forecast – BOJ Statement Does Not Support Yen’s Recent Strength
The Dollar/Yen is trading higher after President Trump signed a bill to keep the U.S. government funded until at least February 8, and after the Bank of Japan kept monetary policy unchanged, but made a few tweaks to its policy statement.
At 0704 GMT, the USD/JPY is trading 111.163, up 0.228 or +0.21%.
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The USD/JPY fell slightly early Tuesday after the BOJ announcements because traders said its views on inflation signaled a slightly less pessimistic central bank outlook on consumer prices. However, the Japanese Yen could not sustain these gains.
Earlier in the session, the U.S. Dollar recovered from earlier losses against the Yen after U.S. senators struck a deal to lift a three-day government shutdown and Trump signed the deal into law.
The BOJ statement showed the central bank maintained its policy and its economic and price projections.
The central bank said risks to prices are still tilted to the downside, though it did change its assessment on inflation expectations to “flat” from “weak”. This change is seen as a technical tweak designed to reflect a recent pickup in inflation, which is largely due to a rise in oil prices.
Forecast
The USD/JPY may be rebounding because today’s BOJ monetary policy statement doesn’t really suggest a change in the BOJ’s stance. The recent sell-off in the Forex pair may have been an over-reaction by traders preoccupied with the idea that the BOJ will adjust its monetary policy at some stage in the future.
That sell-off was fueled by the Bank of Japan’s trimming of its buying of long-dated government bonds earlier this month, sparking speculation of an eventual exit from its large stimulus.
Today’s rebound rally by the USD/JPY may be telling us that investors actually believe BOJ Governor Haruhiko Kuroda when he says he is not considering policy adjustments.
The press conference by Kuroda at 0630 GMT may clear up matters for investors. If Kuroda’s tone is dovish then we may see a rally by the USD/JPY today.