USD/JPY forecast after the dovish BOJ interest rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Sep 22, 2021
  • The USD/JPY pair rose after the relatively dovish BOJ decision.
  • The BOJ left interest rates and quantitative easing policies unchanged.
  • The decision came before the Fed decision.

The USD/JPY pair rose in early trading after the latest Bank of Japan (BOJ) decision. The pair rose from the overnight low of 109.12 to a high of 109.43. 

BOJ decision

The Bank of Japan concluded its two-day meeting on Wednesday and did what most analysts were expecting. The bank decided to leave its key interest rate unchanged at -0.10% and the target of the 10-year Japanese government bond yield at around 0%. The decision was unanimous. 

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At the same time, the BOJ will continue with its asset purchases in a bid to support the economy. However, the officials reduced their assessment in output and exports citing the ongoing labour shortage and shipping crisis.

The BOJ decision came at an important time for the country’s economy. For one, the country heads to an election soon that will see it have a new prime minister. 

Also, Japan’s inflation remains at a significant low compared to other countries. While countries like the US and UK have a CPI of above 2%, the country’s inflation is below 1%. This performance of inflation is likely because of the country’s demographics, where the ageing population does not spend a lot.

Looking ahead, the USD/JPY pair will react to the latest FOMC decision. The Fed is expected to leave interest rates and quantitative easing unchanged. 

Other key catalysts for the pair will be the ongoing Evegrande crisis and the latest US existing home sales numbers. The data are expected to show that sales jumped in August. On Tuesday, the US published strong building permits and housing starts data.

USD/JPY forecast

USD/JPY

The four-hour chart shows that the USD/JPY pair rose after the latest BOJ decision. The pair remains slightly below the Ichimoku cloud and the 25-day and 50-day moving averages (MA). It is also between the important support and resistance levels at 109.10 and 110.30. 

Therefore, the pair will likely remain within this range as traders wait for the Fed decision. The key levels to watch will be the support at 109.10 and the resistance at 110. 

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