Japanese Yen dips as BoJ holds the course

• Bank of Japan maintains policy settings.

• Japan’s core inflation unchanged at 3.1%.

The Japanese yen is lower on Friday, erasing all of the gains seen a day earlier. In the European session, USD/JPY is trading at 148.34, up 0.52%.

Bank of Japan holds policy settings

There was some speculation in the market that the Bank of Japan might hint at some potential moves toward normalization at today’s meeting, but those hopes were dashed as the central bank stuck to its guns. In a policy statement, the BoJ said it would keep interest rates at -0.10% and capped yields of 10-year Japanese government bonds around zero. The yen responded with losses, as the US/Japan rate differential continues to widen – 10-year US Treasury yields closed on Thursday at 4.50%, its highest level since November 2007.

The statement stressed that the Bank would “patiently” continue its ultra-loose policy and twice used the phrase “extremely high uncertainties” with regard to the domestic and global economic outlook. If there were any doubts about the BOJ’s monetary policy stance, the statement ended with a reminder that “the Bank “will not hesitate to take additional easing measures if necessary.” This view makes the BoJ an outlier among major central banks, which are close to winding up their tightening cycles but are sending out the message that further tightening remains on the table.

Japan’s core CPI, which is closely watched by BoJ policymakers, remained unchanged in August at 3.1% y/y, higher than the consensus estimate of 3.0%. Core CPI has now exceeded the BoJ’s 2% inflation target for 17 consecutive months, putting into question the central bank’s stance that high inflation is transient. The BoJ policy meeting did not offer any hints of a shift in policy toward inflation, and I don’t expect to see any changes in the short term.

USD/JPY technical

USD/JPY continues to put pressure on resistance 148.56. The next resistance line is 149.24.

There is support at 147.24 and 146.52.