BOJ could act on Friday, but it may not matter

USD/JPY could see a pullback over the next few days ahead of the FOMC and BOJ meetings

FOREX 7

The BOJ has been providing monetary stimulus to Japan for years in the form of negative rates, ETF buying, and yield curve control (bond buying).  Since the pandemic, the extraordinary stimulus has only increased. After years and years of support, the Bank of Japan (BOJ) begins another 2-day meeting review on Wednesday.  On Friday, they will release the results of their findings.  Currently, the BOJ owns nearly $450 billion worth of Japanese ETFs. With stock markets at their highest levels since the 1990s, the BOJ must find a way to communicate to the markets that they are willing to do “something”, while not considering it tapering.  They could announce a reduction in the amount of ETFs they buy, but that may be a bit less dovish than they want to sound.  A more likely scenario, as had been mentioned by the BOJ last week, is to seek a freer yield fluctuation around the zero target on the 10-year JGB.  The current range is 20 bps in either side.  This would allow them to do “something”, without signaling too much.

Everything you should know about the Japanese Yen

USD/JPY has been highly correlated with the US 10-year yield.   On a daily timeframe, the correlation coefficient between the US 10-year yield and USD/JPY is currently +0.91.  A reading to +1.00 means that the two assets are perfectly correlated and move together on a one to one basis.  USD/JPY has been moving together with 10-year yields in an orderly, upward sloping channel since the beginning of 2021.  On March 4th,  the pair broke above the channel and is testing a downward sloping trendline (red) dating back to June of 2015!  On Monday, price put in its highest level since June 2020 near 109.36 as the RSI began to diverge in overbought territory. The pair has room to pull back to let the RSI unwind.  There may be some profit taking ahead of both the FOMC on Wednesday, as well as the BOJ meeting on Friday.  Support is at horizontal resistance near 108.16.  Below there is the top, upward sloping trendline from the channel near 108.70.  However, even if price pulls back to the 38.2% Fibonacci retracement from the January 6th lows to the yesterday’s highs, near 106.74, the longer-term daily trend would still be higher.  If bulls decide to push USD/JPY higher, first horizontal resistance above yesterday’s highs is 109.85.

Source: Tradingview, City Index

USD/JPY could see a pullback over the next few days ahead of the FOMC and BOJ meetings.  However, whether or not the BOJ does anything, may not matter.  USD/JPY price action ultimately could be about the FOMC outcome and the resulting move in US 10-year interest rates.

Learn more about forex trading opportunities.


From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.