USD/JPY Price Analysis: Reverses south swiftly as investors assess BoJ policy

The USD/JPY pair demonstrates wild spikes after the Bank of Japan (BoJ) allows more flexibility in Japanese Government Bonds (JGBs) yields but as usual, keeps interest rates unchanged. Changing dynamics in the Japanese economy as wages and corporate earnings have increased are allowing the central bank to gradually move towards tightening monetary policy so that the Japanese yen could be safeguarded against other currencies.

Before the policy announcement, Japanese Finance Minister Shunichi Suzuki hit the wires, citing that they are “closely watching fed and other central banks' policy decisions.” This indicates that expectations of an intervention to provide a cushion to the Japanese Yen are still open.

Meanwhile, the US Dollar Index (DXY) is juggling in a narrow range around 101.80 after a rally as the United Stated economy turned surprisingly resilient than expected.

USD/JPY is declining towards the horizontal support which is plotted from May 19 low around 137.43 on a four-hour scale. The asset has failed to sustain above the 50-period Exponential Moving Average (EMA) at 140.36, which indicates that the short-term trend is bearish.

A slippage below 40.00 by the Relative Strength Index (RSI) (14) would activate the bearish momentum.

Going forward, a decisive breakdown of May 19 low around 137.43 would expose the asset to May 16 low at 135.67 followed by May 11 low at 133.75.

In an alternate scenario, a decisive move above July 21 high at 142.00 would send the major toward July 10 high at 143.00. Breach of the latter would drive the asset towards June high at 145.07.

USD/JPY four-hour chart