BOJ disappoints

The BoJ didn’t announce anything new at its policy meeting, electing not to expand EFT, J-Reit purchases or alter funding terms. The inaction was largely expected, but there was some lingering hope that the bank may take further action, especially regarding extending fixed rate operations in order to ease bond market volatility, which led to a push towards the yen. The option on the table was to increase the maximum length of loans to two years, from one year currently.

Overall, the BoJ seems content with what is currently in the works, which opens the door for possible JPY gains in the near-term. However, in the long-term we still see weakness in the yen against the US dollar. Recent spouts of JPY strength have been centred on the volatility in the bond market, but yields aren’t yet near worryingly high levels.

On the other side of the equation, the dollar is benefiting from the US’ strong performance relative to other nations, which is resulting in some repositioning away from underperforming countries. While growth in the US remains fairly lacklustre and the economy is not out of the woods yet, the Fed’s massive easing program appears to be breathing life into key sectors of the economy, which is helping to spur job creation. Should this endure we would expect to see the US dollar continue to march higher. Yet, if domestic data starts to disappoint the market, then the walls could come crashing down fairly quickly.

Accordingly, USDJPY may be set to resume its push higher in the long-term. In the near-term, USDJPY failed to break above a key resistance level around 99.35 – 50.0% retracement level from highs at the end of last month and 50 4hrSMA – which may see the pair towards 97.15.