The BoJ kept its short-term target at -0.1% and the 10Y at 0%. This dovishness was a unanimous decision, with the bank reiterating that it would take additional easing measures if needed. In addition, it raised its expectation of core inflation to 2.9% for 2022, dropping to 1.6% in the next two years.
The Japanese government is also looking to constrain inflation. It has extended fuel tax cuts until 2023 and subsidises household electricity. However, this will require more debt. Currently, yields are being kept artificially low. If these rise in the future, the debt will become expensive.
This dovishness is likely to prove a thorn for the Ministry of Finance. Its late interventions to support the JPY will have short-term effects until the fundamentals change. I.e. a normalisation of spreads in US-JP bonds.
So it is no surprise that USDJPY has appreciated today, with the EMAs and stochastic crossing up (black ellipses). If the stochastic holds the 80+ levels, further appreciation is probable, but so is the likelihood of further intervention.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.