Early on Tuesday, around 03:00 AM GMT, the Bank of Japan (BOJ) will provide the decision of its routine monetary policy meeting. Following the rate decision, BOJ Governor Haruhiko Kuroda will attend the press conference, around 06:00 AM GMT, to convey the logic behind the latest policy moves.

The Japanese central bank is widely expected to keep the short-term interest rate target at -0.1% while directing 10-year Japanese Government Bond (JGB) yields toward zero.

Although the BOJ isn’t expected to offer any change in its monetary policy, the quarterly economic forecasts will be important to watch following the fresh talks of the virus-led threats to inflation, as signaled in the latest Summary of the BOJ Monetary policy meeting.

Ahead of the event, Westpac said,

Basic policy settings are expected to be unchanged, notably the ‘around zero percent’ yield target for the 10-year bond. But quarterly forecasts will be noted, with suggestions that inflation forecasts will be nudged a little closer to the 2% target and the longstanding bias of downside risks to inflation removed.

Additionally, FXStreet’s Dhwani Mehta said,

Despite the upbeat economic outlook for the next fiscal year, the BOJ could refrain from deciding on continuing the current easing measures, as the Omicron covid wave is brewing trouble once again in Japan. 

How could it affect the USD/JPY?

USD/JPY remains pressured around 114.45, down 0.12% intraday, ahead of the BOJ event. The yen pair reacts to the soft USD despite firmer yields amid mixed concerns over Fed’s rate hike and Omicron.

While portraying the market moves, the US 10-year and 5-year Treasury yields rose to the highest in two years while 2-year coupon jump to the February 2020 levels during the week-start move. On the other hand, S&P 500 Futures rise 0.12% intraday by the press time.

Given the wide division between the policymakers of the US Federal Reserve (Fed) and the BOJ, the carry trade opportunities may escalate should the BOJ choose to keep the easy money flowing by citing the virus-led economic hardships. However, the covid-linked challenges to inflation may weigh on the carry trade and weigh on the USD/JPY prices.

Technically, failures to cross October 2021 peak and previous support line from late September, surrounding 114.70, join the bearish MACD signals to direct USD/JPY prices towards the latest swing low near 113.50.

Key Notes

USD/JPY snaps two-day uptrend around 114.50 despite firmer yields, BOJ eyed

BOJ Preview: Raising its view on inflation, finally!

About BoJ Rate Decision

BoJ Interest Rate Decision is announced by the Bank of Japan. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the JPY. Likewise, if the BoJ has a dovish view on the Japanese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

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