The USD/JPY pair experienced a sharp decline of 1.5% following the unexpected rate hike by the Bank of Japan (BoJ). This move marks the second rate increase by the BoJ since 2007, pushing Japanese interest rates above zero for the first time in nearly a decade.
As markets digest this development, all eyes turn to the Federal Reserve’s upcoming rate decision, with expectations of a possible rate cut in September. The Fed is anticipated to maintain rates at their current levels for now, but the sentiment is leaning towards a quarter-point reduction next month.
Key takeaways from the market movement
- The BoJ surprises with a quarter-point rate hike, lifting rates to 0.25%.
- The Fed likely to keep rates unchanged in July.
- Market focus on forward guidance for hints on September’s rate cut.
- 100% odds of a rate trim in September according to rate markets.
- BoJ’s asset purchasing program trimmed less than expected.
- US Interest Rate Decision: Federal Reserve expected to maintain status quo until September
Technical analysis and future outlook
The USD/JPY pair retreated to the 150.00 level, dropping 1.5% and slipping below the 200-day Exponential Moving Average (EMA). Despite recent highs, the pair has decreased by 7.6% due to interventions from the BoJ and the Japanese Ministry of Finance.
Looking ahead, a potential rebound could push USD/JPY back above the 200-day EMA at 152.40, with a support level at 147.50. Further downside could target levels near 140.00.
Insights into the Japanese Yen
The Japanese Yen’s value is influenced by various factors such as the BoJ’s policies, bond yield differentials, and risk sentiment. The BoJ’s ultra-loose monetary stance has led to a policy divergence with other central banks, favoring the US Dollar against the Yen.
Additionally, the Japanese Yen is often considered a safe-haven asset, strengthening during market turmoil due to its perceived stability.
Overall, the recent rate hike by the BoJ and the upcoming Fed decision signal potential shifts in the currency markets, impacting investment strategies and financial decisions globally.