USD/JPY price edges higher as BoJ calls for an emergency meeting

USD/JPY price edges higher as BoJ calls for an emergency meeting

  • Bank of Japan schedules an extraordinary meeting on Friday to discuss new measures
  • The bank is likely to inject fresh capital into several hundreds of SMEs
  • USD/JPY edges higher as it attempts to clear the $107.50 resistance

USD/JPY is on the brink of breaking out of the descending wedge as the Bank of Japan (BoJ) called for an unscheduled meeting that is likely to result in introducing new measures to support the embattled economy. 

Fundamental analysis: New measures to provide funds

The BoJ scheduled an extraordinary meeting on Friday, May 22, to discuss a new set of activities aimed at providing fresh funds to the economy and businesses, the Nikkei reports. After the last meeting of the bank on April 27, the BoJ Governor Kuroda hinted that the bank may not wait until June 16, when the next regular meeting is scheduled, to introduce the new measures to support the economy that sunk into a recession

One of the measures to be introduced is setting up the new private-public fund to support small to medium-sized enterprises (SMEs) with cash injections. The fund will allocate almost $500 million to several hundreds of SMEs, mainly in the manufacturing, services and other industries that are seen of great importance for the Japanese economy. 

These new measures will be introduced as a part of the second supplementary budget for fiscal 2020. The fund is likely to be created in August and September and will inject cash in companies, hence no repayments will be required. Additional loans from private institutions will be available to these companies. 

“Support measures will include debt purchases and debt-to-equity swaps in which portions of companies’ outstanding loans are exchanged for equity,” the Nikkei report notes. 

Technical analysis: USD/JPY edger higher

USD/JPY, as expected, has moved slightly higher on the reports that the BoJ called for an emergency meeting on Friday. Injection of the new capital into the economy is generally not supportive of the national currency as the supply of money increases that leads to a decrease in the cost of money.

USD/JPY daily chart (TradingView)

The pair is now attempting to break above the upper line of the descending wedge around the $107.50 mark. A daily close above this level will set up the base for the buyers to further push the price action higher in the coming days. Looking forward, the bulls are likely to target $107.80, $108.05 and most importantly, $108.50 in the coming days. 

Summary

USD/JPY is trading modestly higher today on a weaker yen after the BoJ called for an unscheduled meeting on Friday. The bank is likely to discuss and authorize the introduction of new measures to support business activity. 

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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