USD/JPY sideways at the 114.50 zone

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  • USD/JPY has settled in the 114.50 area, almost sideways on the day despite a dovish BoJ and rising US yields.
  • Safe-haven demand has underpinned the yen on a day when Fed tightening fears have driven US equities lower.

The USD/JPY has pulled back to around 114.50 in recent trading after briefly rallying to the 115.00 level during Asian session trading on post-BoJ rate decision yen weakness. Dovish-than-expected BoJ aside, some FX traders will be surprised at USD/JPY’s inability to follow the latest advances in US bond yields that saw US 10yr bonds reach its highest level since January 2020 above 1.85% on Tuesday. Conversely, at current levels just above 114.50, USD/JPY is still trading 1.5% below the multi-year high of 116.35 it reached in the first week of 2022.

The failure of USD/JPY on Tuesday to hold above 115.00, or indeed above the 21-day moving average at 114.91, the post-BoJ rise in US bond yields probably has a lot to do with the risk-averse tone of the market. US stocks slumped on Tuesday as a result of Federal Reserve tightening fears and, unsurprisingly, currency markets became quite defensive. A much weaker-than-expected New York Fed manufacturing survey did not turn the dial on currency markets.

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Summary of Tuesday’s BoJ meeting; As expected, the bank did not announce any new policy changes but modestly upgraded its inflation and growth forecasts, as sources had recently hinted was likely. The inflation forecast for fiscal years 2022/23 and 2023/24 was raised to 1.1% from 0.9% and 1.0% previously, while language on risks to prices was adjusted to “generally balanced” from “skewed.” down”.

Governor Haruhiko Kuroda acknowledged that price pressures had increased, but was keen to reject any talk of rate hikes. “We are not discussing an interest rate increase,” he said at the post-meeting press conference, adding that “the average board member forecast is for inflation to move around 1%… In such conditions, we are not thinking at all about raising rates or modifying our expansionary monetary policy. “We continue to expect the BoJ to stick to its current policy framework until at least Governor Kuroda’s term ends next April,” said an MUFG analyst, adding that “the growing divergence between the BoJ’s policy expectations and the Fed should continue to put upward pressure on USD/JPY.”

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Technical levels

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