Bank of Japan Sits, Yen Rises

As expected, the Bank of Japan left interest rates unchanged at 0.1% during today’s Policy Meeting.  More importantly, they also stated that they will refrain from further monetary easing this month, on signs of improvement in Japan’s economy.  The decision to withhold monetary stimulus contrasts to the BoJ’s meeting in February when the central bank was worried about a Japanese recession and deflation.

On the news, equity traders sold Japanese shares, as the Nikkei index closed 8 points lower after trading 100 points higher earlier in the session.  In contrast to stocks where traders were disappointed about the lack of further stimulus, the Japanese yen is seeing across the board strength on the BoJ’s results. 

USDJPY Looking Ahead

After moving from 76.00 to 84.00 from February to late March, the USDJPY is trading back around 81.00.  Looking ahead, the USDJPY’s current retracement from its March highs could be set to continue as the combination of the BoJ being on hold and the US looking more and more likely to be headed towards new monetary stimulus, may send Forex traders back into the yen.  The question though is how aggressive will Forex traders be in their rotation back into the yen.  Ultimately, that will probably be answered by the outcomes of economic data from the US.

If the US data continues to look steady, than any USDJPY move lower will find it tough to break below 80.00 support.  However, if worries that were triggered by last Friday’s worst than expected Non Farm Payroll’s results continue to increase, we could easily see a drop below the 80.00 figure with a the USDJPY moving to 78.00.  Over the short term, Forex traders should keep their eyes out for Friday’s US CPI data, but until than momentum is squarely in the yen’s favor.