Japanese currency notes, Japanese Yen. Image source: Norasit Kaewsai © 123RF.com
Earlier today, the Policy Board of the Bank of Japan decided to maintain the negative interest rate in the country unchanged at -0.10 per cent. This was vastly anticipated by the consensus forecasts and is the reason as to why there was no significant market shock following the publication of the decision.
Additionally, the Board announced that it would be continuing with its asset-purchasing programs to sustain sufficient levels of liquidity circulating within the broader financial system.
Arguably, the most important takeaway from the monetary policy decision was the disclosure that the Bank would continue purchasing Japanese government bonds (JGBs) without setting up an upper limit.
The Board stated that it anticipates the yields of most government treasuries to remain at around 0 per cent as a consequence of this extensive QE program.
The BOJ's decision to refrain from limiting the upper-boundary of its monetary policy underlines the significance of the coronavirus fallout that weighs heavily on the Japanese economy.
But even more so, it signifies the uncertainty that looms over the eventual path to economic recovery. The market can, therefore, interpret the BOJ's overwhelmingly accommodative policy as an indication of the Bank's preparations for mitigating further economic disruptions down the line.
At any rate, investors are likely going to stay away from the local bonds market, which is going to have indirect consequences for the Japanese yen.
The currency has been bolstered by heightened global demand during the COVID-19 pandemic due to its status as a safe-haven asset. However, BOJ's extensive asset-purchasing programs could offset this effect as investors and traders start fleeing to more competitive options.
The yen has been losing ground to the greenback over the last several days, and the aforementioned developments could bolster this process even more.
As can be seen from the 4H chart below, the USDJPY appears to be gearing up before it attempts to break out above the major resistance level at 107.900 yet again after three failed previous attempts.
The price action has tumbled to the pitchfan's lowest boundary, which is currently serving as an intermediate support. If it bounces back up from it, this is going to underline the strong bullish commitment in the market.
However, should the price action fall below the pirchfan's lowest boundary, but above the major support level at 107.400, this could potentially highlight the formation of a new Distribution range.
A potential consolidation of the price action between the major resistance and the major support levels could be interpreted as a transition from bullish trending environment into range-trading one, which, in turn, could be followed by the formation of a new bearish trend.
USDJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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