The JPY is on the move – should you buy or sell it here?

By:
on Apr 28, 2023
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  • The Bank of Japan changed its monetary policy statement
  • A broad review is due in about 1-1.5 years
  • The JPY did not like the outcome

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Today is the last trading day of the month. As such, spikes in volatility should be expected, both in the currency and the stock market.

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The currency market was relatively slow in April. Following the US banking crisis in March, one would have said that the volatility would persist in the upcoming month – but it didn’t. However, one currency moved more than others – the Japanese yen (JPY).  

One reason is that the yen is a traditional safe-haven currency for investors, so it tends to appreciate in times of uncertainty. This is why the JPY pairs declined in March, and all rallies in April have been sold.

Another reason is that in March, consumer prices in Japan rose by 3.1% YoY, well above the central bank’s target of 2%. As such, the report was enough to fuel speculations that the central bank will end its massive stimulus sooner rather than later.

Finally, the central bank, the Bank of Japan (BOJ), had its meeting scheduled for the month’s last trading day. Meaning, earlier today.

What did the Bank of Japan do?

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The Bank of Japan did change something in today’s statement. First, it removed a key line used previously: “it also expects short/long-term policy interest rates to remain at their present or lower levels.”

This was hawkish, and the initial market reaction was to buy the JPY. For instance, the USD/JPY exchange rate dropped to 133.30 area from 134.

But it quickly rebounded because of the second change the Bank of Japan made to its previous policy. Namely, the bank stated that it has decided to “conduct a broad-perspective review of monetary policy within 1-1.5 years.”

All good and great, but the market wanted it here and now. Therefore, the JPY pairs reversed course, and, at the time of writing this article, the USD/JPY knocks at the 136 door, a sharp reversal.

In a way, the Bank of Japan does what the European Central Bank did a while ago. It took the ECB about a year to reassess its policy, so the Bank of Japan does something similar.

The only difference is that the JPY pairs were depressed lately on expectations that something would change today.

It did not. Therefore, more upside for the JPY pairs should follow.

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