• Japanese policymakers expected to maintain their monetary policy unchanged.
  • BOJ’s Summary of Opinions anticipated a wait-and-see stance.
  • USD/JPY would likely see little action with the central bank’s decision.

After a chaotic end to Q1, the Bank of Japan is back to usual business. Policymakers will have a meeting to decide on monetary policy early Wednesday.  No fireworks, however, are expected, as policymakers will likely maintain negative interest rates at -0.1% and their pledge to keep the yield curve under control, by keeping the 10-year JGB  yield at around 0.0%. Attention will then center on the economic forecasts for this fiscal year and the next.  

Slow and painful road to recovery

According to the quarterly economic outlook released last April, policymakers trimmed real GDP growth from 0.9% to a range of -3% -5%. The figures will likely be revised further lower at this point, as an economic recovery in the second half of the year has long been off the table. Core inflation at the end of the first quarter of the year was expected to decline to a range of -0.3%  -0.7%, and could also be revised lower this time.

A dovish stance has been anticipated by the BOJ’s Tankan report released earlier this month. The Large Manufacturing Index plunged to -32 in Q2, its lowest reading in over a decade. The survey showed that all the nine regions saw economic activity either deteriorating or holding into severe conditions, a result of the coronavirus pandemic.

Nevertheless, the BOJ’s Summary of Opinions indicated that policymakers are comfortable with the current level of economic support, and that will likely maintain a wait-and-see stance.

Not everything is lost. Japanese authorities have learned the lesson, and refuse to return to lockdown, despite the number of new contagions increased last week, with the country reporting an average of 200 cases per day.  But the way towards an economic comeback will likely be long and bumpy.

USD/JPY probable reaction

The USD/JPY pair has been unable to leave the current price zone for over four weeks already and seems little the BOJ can do to trigger a sustainable directional move. Financial markets are all about sentiment these days, and an on-hold central bank regardless of downward revisions to forecasts, won’t be enough to offset risk-related sentiment.

Short-term reactions, however, are possible. The pair could near the 108.00 level on a break above 107.50, but will likely meet sellers around the first. To the downside, 106.60 is the probable bearish target, in the case the Japanese currency gets a boost from the BOJ.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD pressured below 1.21 amid mixed markets mood

EUR/USD is trading below 1.21, consolidating Friday's losses as the market mood is mixed. Upbeat Chinese GDP and US stimulus are cheering markets while Italy's political crisis and the depressing coronavirus picture is weighing on sentiment. 


GBP/USD fails to recover despite accelerated UK vaccine campaign

GBP/USD remains below 1.36, shrugging off the expansion of Britain's vaccination campaign. Post-Brexit talks on financial services continue while tension is mounting ahead of US President-elect Biden's inauguration. 


Gold struggles to capitalize on intraday bounce, up little around $1930-32

Gold struggled to capitalize on its goodish intraday bounce of nearly $40 and was last seen trading with modest gains, around the $1830-32 region.

Gold news

Forex Today: Dollar holds onto gains, shrugging off upbeat Chinese GDP, vaccine news eyed

Markets are mixed on "Blue Monday" with the dollar clinging to gains related to risk aversion, while upbeat Chinese growth partially offsets the gloom.Tension is mounting ahead of President-elect Biden's inauguration.

Read more

US Dollar Index clinches new 2021 highs near 91.00

The greenback, when measured by the US Dollar Index (DXY), adds to Friday’s gains and moves closer to the key barrier at 91.00 the figure, or new 2021 highs.

US Dollar Index News

Forex Majors