USD/JPY Slips Lower After BoJ Stands Pat but Hints on Improving Inflation Outlook

Japanese Yen – USD/JPY Prices, Charts, and Analysis

• Bank of Japan keep monetary policy ultra-loose for now.
• Short-term rates are left at -0.1%, 10-year bond yield is around 0.0%.

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The Bank of Japan today said that consumer inflation may be moving higher, giving a nudge towards tighter monetary policy conditions in the months ahead. In the Quarterly Outlook, the BoJ lowered their forecasts for core inflation to 2.4% from 2.8% but said,

‘Consumer inflation is likely to increase gradually toward the BOJ’s target as the output gap turns positive, and as medium- to long-term inflation expectations and wage growth heighten,’ adding, ‘the likelihood of realizing this outlook has continued to gradually rise, although there remain high uncertainties over future developments,’

The latest BoJ interest rate probabilities see a rough 50/50 chance of a rate hike at the April 26th central bank meeting.

While the Bank of Japan may have added a bit of support to the Japanese Yen, the medium-term outlook for USD/JPY will be driven by the US dollar and upcoming data releases and events. This Friday the latest Core PCE report will drive price action going into next week’s FOMC meeting. While the Fed is fully expected to leave rates untouched, Chair Jerome Powell’s comments in the post-meeting press conference will need to be followed closely. The markets will be looking for Chair Powell to give some sort of indication about when the central bank expects to begin its rate-cutting cycle, and any comment around this will steer the US dollar.

USD/JPY has turned lower from last Friday’s 148.80 multi-week high and has tested 147.00 so far today. The pair remain supported by all three simple moving averages and a break below 146.00 opens the way to 145.00 or lower. A combination of Yen strength and US dollar weakness could see the pair eventually move down to 140.00. The upside remains capped and it will take an above forecast US inflation release or a hawkish Chair Powell next week to send USD/JPY back to 150.

USD/JPY Daily Price Chart

Retail trader data show 26.13% of traders are net-long with the ratio of traders short to long at 2.83 to 1.The number of traders net-long is 7.17% higher than yesterday and 15.88% lower from last week, while the number of traders net-short is 2.86% higher than yesterday and 14.98% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.