Tokyo Streets. Image source: Yoshimitsu Kurooka, flickr.com
BOJ Keeps the Policy Rate Unchanged, USDJPY Rebounded from the Dip
The yen had an adverse reaction to today's policy decision of the BOJ, and the pair continues to struggle against other majors at present. Have a look at our previous analysis of the GBP to get a better sense of where this transient weakness of the yen comes from.
At the September meeting of BOJ's Monetary Policy Committee (MPC), the Committee expectedly decided to maintain the negative policy rate unchanged at -0.10 per cent. The USDJPY rebounded from its recent dip in the immediate aftermath of the decision.
USDJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The pair's price action remains concentrated within the boundaries of a solid consolidation range, as shown on the 4H chart above. Its outer bounds include the major resistance level at 110.800 and the major support at 108.800. Traders can expect the price action to continue fluctuating within these two extremes in the near term.
Even still, bearish pressure keeps increasing gradually and today's decision of the BOJ bolstered this process. The price action broke away from the limits of the ascending channel, which was contained within the area of the broader range, and is currently forming a new descending channel.
Following the recent breakdown below the 61.8 per cent Fibonacci retracement level at 109.522, the price action rebounded from the lower trend line (in red). It is currently probing the former from below.
The price action is testing the 61.8 per cent Fibonacci's new role as a support-turned-resistance. This is happening just as the underlying selling pressure reached a fresh peak, as demonstrated by the Stochastic RSI indicator.
A potential reversal from the current threshold could spell a fresh downswing towards the lower limit of the broader range. In contrast, another retracement back above the 61.8 per cent Fibonacci could lead to a subsequent retest of the 38.2 per cent Fibonacci at 110.013.
Negative inflation remains a major predicament
The BOJ observed the strong economic recovery that has been observed in Japan and elsewhere, though the MPC highlighted that stabilisation remains dependent on the ongoing vaccinations process. An additional concern for policymakers in the BOJ remains the persistently negative inflation rate.
Japan MoM Inflation Rate. Image source: TradingEconomics.com
The Committee forecasted marginal growth in consumer prices over the next period, subject to the recent spike in energy prices. Even still, demand in the retail sector remains stymied by the pandemic, which makes it an ongoing impediment to sustainable growth. This trend could be exasperated by an expected decline in crude oil prices.
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