USD/JPY crawls back after BOJ rate decision – downgrades growth forecast

USD/JPY crawls back after BOJ rate decision – downgrades growth forecast
Written by:
Crispus Nyaga
29th October, 03:33
  • The USD/JPY pair bounced back before and after the BOJ interest rate decision.
  • The bank left interest rate, QE, and yield curve control program unchanged.
  • It also pledged to intervene if the situation worsened.

The USD/JPY pair rose by 0.15% as traders reacted to the Bank of Japan (BOJ) interest rate decision. It is trading at 104.46, which is slightly above yesterday’s low of 104.10.

USD/JPY
USD/JPY rises after BOJ decision

Bank of Japan interest rate decision

The Bank of Japan has been one of the most active central banks in the market this year. Although it has not cut rates as its counterparts, it has used other tools to support the world’s third-biggest economy.

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These measures, together with those implemented by the Japanese government, have helped Japan navigate its worst recession in decades. The economy contracted by 7.9% in the second quarter, which was better than peer countries like the United States, Eurozone, and the United Kingdom.

Today, the Bank’s monetary policy committee delivered its interest rate decision. The bank decided to leave rates unchanged at -0.10%, in line with what most analysts polled by Reuters were expecting. It also left its quantitative easing program and its yield curve control unchanged.

For starters, QE is a process in which the bank purchases government and other types of bonds. This helps to provide liquidity and push the overall government borrowing affordable. Indeed, this program has seen the bank’s balance sheet soar from ¥569 trillion in September last year to the current ¥689 trillion.

Yield curve control, on the other hand, is aimed at managing long-term interest rates. In this case, the bank has put in place a target of -0.1% to the ten-year government bonds.

In its statement, Hurohiko Kuroda, the bank’s governor, said that the bank was committed to help support the economy as the global economic situation worsens. To achieve this, he said that the bank will leave its tools unchanged and possibly lower them if things worsen. He said:

“The bank will continue with the quantitative and qualitative monetary easing with yield curve control, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining the target in a stable manner.”

Meanwhile, the Japanese bank expects the economy to worsen. It now expects the economy to drop by between 5.6% and 5.3% this year. That is worse than the previous range of 5.7% and 4.5%. Similarly, it expects inflation to drop by between 0.7% and 0.5%, down from the previous estimate of 0.6% and 0.4%.

USD/JPY technical outlook

USD/JPY
USD/JPY technical chart

On the four-hour chart, we see that the USD/JPY pair has bounced back today. It has moved from yesterday’s low of 104.13 to the current level of 104.47. Also, the pair has been forming an inverted cup and handle pattern, which is shown in black. It is still slightly below the 25-day and 15-day exponential moving averages. Most importantly, it is in the fifth wave of the Elliot wave pattern. Therefore, I suspect that these gains will be limited and that the pair will resume the downward trend in the near term.

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