USD/JPY bounces back after the dovish BOJ interest rate decision

USD/JPY bounces back after the dovish BOJ interest rate decision
Written by:
Crispus Nyaga
December 18, 2020
  • The USD/JPY pair rose today after the relatively dovish interest rate decision by the Bank of Japan.
  • The bank left interest rate and the yield curve control policy unchanged.
  • It also extended the duration of its asset purchases policies.

The USD/JPY pair pulled-back after the final interest rate decision by the Bank of Japan (BOJ). It is trading at 103.37, which is higher than yesterday’s low of 102.87. 

USD/JPY price action

Bank of Japan decision

The BOJ delivered its interest rate decision that was in line with what analysts were expecting. It decided to leave interest rates unchanged at -0.10, where they’ve been since 2015. 

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Also, the bank committed to continuing acquiring assets in a bid to boost the economy. The only change was that the bank lengthened its duration of making these acquisitions by another six months until the end of September 2021.

The upper limit of the quantitative easing policy will be 20 trillion yen.15 trillion of these funds will be for CP purchases and corporate bonds. 

In addition, the bank said that it would extend the Special Funds-Supplying Operations by another six months. These are funds designated for companies to take loans in a bid to boost their financial situation.

Further, the BOJ will continue its policy of yield-curve control, where it is targeting the yield of the three-year bonds to minus 0.1%. 

The BOJ rate decision came two days after it decided to make its first-ever purchases of dollars from the foreign exchange reserves. On Wednesday, the bank said ur would buy about $6 billion of dollars to boost the liquidity of the currency. These purchases will represent about a tenth of its foreign currency assets.

Also, the decision came two days after the Federal Reserve decided to leave its policies unchanged. It left rates unchanged and pledged to continue buying assets. The Bank of England and Norges Bank also delivered their decisions yesterday.

Notably, the BOJ decision came a few hours after the country’s statistics office released weak consumer price index data. The headline CPI dropped at the fastest pace in about 10 years in November. 

USD/JPY technical outlook

USD/JPY technical chart

The USD/JPY price has moved from yesterday’s low of 102.87 to the current level of 103.40. On the hourly chart, the 25-period and 15-period exponential moving averages have made a crossover. In our free forex course, we note that this is usually a bullish scenario. The Relative Strength Index (RSI) has also moved from the oversold low of 22 to about 60. Therefore, the pair will likely continue rising as bulls aim for the next resistance at 103.60.