- A combination of factors assisted USD/JPY to gain traction for the second straight day.
- The risk-on mood, dovish BoJ undermined the safe-haven JPY and remained supportive.
- A modest uptick in the US bond yields benefitted the USD and provided an additional lift.
The USD/JPY pair held on to its intraday gains through the early European session and was last seen hovering near the 108.20-25 region.
The pair edged higher for the second straight session and climbed to a one-week high level of 108.38 during the first half of the trading action on Tuesday. The underlying bullish tone in the financial markets undermined demand for the safe-haven Japanese yen. Bulls further took cues from a modest uptick in the US Treasury bond yields, which extended some support to the US dollar and provided an additional lift to the USD/JPY pair.
The supporting factors, to a larger extent, were offset by worries that soaring COVID-19 infections in India and Japan could derail the global economic recovery. The pair lacked any strong follow-through buying and witnessed a modest pullback after the Bank of Japan (BoJ) announced its monetary policy decision. As was anticipated, the BoJ left the benchmark interest rate unchanged at -10bps at the conclusion of its monetary policy review meeting on Tuesday.
Additionally, the Japanese central bank maintained its pledge to buy J-REITS at an annual pace of up to ¥180 billion and clarified that the 10-year JGB yield may move up or down 0.25% around its 0% target. The BoJ also altered the ETF buying limits and removed the lower ceiling of ¥6 trillion ($55 billion) while keeping an upper limit of ¥12 trillion.
In the quarterly economic forecasts, the BoJ took a more optimistic view of the growth outlook and raised its growth forecast for the fiscal year started this month to 4% from 3.9%. At the same time, the bank lowered its price forecast for this year to 0.1%, reaffirming that it won't be changing the accommodative monetary policy stance in the foreseeable future. This was reinforced by the BoJ Governor Haruhiko Kuroda's comments at the post-meeting press conference.
Kuroda said that the 2% inflation target can be achieved by patiently continuing the powerful monetary easing. This, in turn, continued weighing on the JPY and remained supportive of the bind tone surrounding the USD/JPY pair. That said, bulls might still wait for a sustained move beyond mid-108.00s before positioning for any further appreciating move.
Technical levels to watch
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