USD/JPY slumps +200 pips to sub-135.00s despite Bank of Japan inaction

• USD/JPY takes offers to refresh intraday low, reverses the latest gains.
• Bank of Japan keeps monetary policy unchanged, as expected.
• Mixed sentiment, firmer yields previously underpinned recovery moves amid light calendar elsewhere.
• Chatters over Japan’s more bond issuance, cap on yields highlight BOJ Governor Kuroda’s speech.

USD/JPY stands on slippery grounds near 134.80, losing nearly 200-pips on the Bank of Japan’s (BOJ) inaction during early Tuesday.

That said, the BOJ held its benchmark rate unchanged at -0.10% while keeping the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero. In doing so, the Japanese central bank matched the market expectations. The surprise factor, however, was the BOJ’s alteration of the Yield Curve Control (YCC) and the bond issuance announcements. The BOJ will expand the range of 10-year Japan government bond yield fluctuations from its current plus and minus 0.25 percentage points to plus and minus 0.5 percentage points, stated Reuters.

Also read: Breaking: BoJ stands pat on monetary policy, USD/JPY drops

Earlier in the day, talks of Japan’s heavy budget proposal triggered the talks of more bond issuance and yield caps. Japan's budget proposal for the 2023-2024 fiscal year (FY) could be as high as 114 trillion yen, the Nikkei reported, adding that the government could issue more than 35 trillion yen in bonds, per Reuters.

In this regard, Japan Finance Minister (FinMin) Shunichi Suzuki ruled out speculations that the Japanese government and the Bank of Japan have decided on a policy to revise joint statements.

Elsewhere, market sentiment remains dicey amid hawkish central bank moves and recession fears. Even so, China’s readiness for more stimulus and an effort to improve trade ties with other nations, recently with Australia, seem to underpin cautious optimism. Alternatively, the World Bank’s recent pessimism surrounding China and hopes of more rate hikes from the global central banks challenge the risk-on mood. As a result, the USD/JPY pair remained mostly firmer, mainly due to the US Dollar’s safe haven appeal.

While portraying the mood, S&P 500 Futures print mild gains despite the downbeat closing of Wall Street. That said, the benchmark 10-year US bond yields rose 1.5 basis points (bps) to 3.60% whereas the two-year counterpart rises to 4.26% by the press time, which in turn portrays the yield curve inversion and suggests the market’s rush for risk safety.

Looking forward, USD/JPY pair traders will pay attention to a speech from BOJ Governor Haruhiko Kuroda for immediate directions. In that case, the sellers may seek hints for Yield Curve Control (YCC) for keeping the reins.

Technical analysis

USD/JPY jostles with the 21-DMA hurdle surrounding 137.40 inside a 12-day-old bullish channel, currently between 135.00 and 138.40.