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BOJ Holds Negative Rates Despite Pressure

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  • The BOJ remains dovish, holding rates at -0.1%.
  • The BOJ plans to keep supporting Japan’s economy with stimulus.
  • Japan’s inflation is expected to rise above the 2% central bank target.

Today’s USD/JPY price analysis is bullish as BOJ’s failure to raise interest rates continues enlarging monetary policy divergence between the US and Japan.

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The Bank of Japan retained its -0.10% rate, maintaining its dovish stand amid policy tightening worldwide. The bank forecasted inflation would rise above its target this year. It maintained that it was in no rush to withdraw stimulus meant to support the weak economy.

“Uncertainty surrounding Japan’s economy is very high. We must be vigilant about financial and currency market moves and their impact on the economy and prices,” the BOJ said in a quarterly report issued after the decision.

While this is happening, the Federal Reserve is raising rates aggressively, causing a more extensive divergence between the two countries. The BOJ has no incentive to raise rates as inflation remains relatively low in Japan.

“Inflation isn’t increasing much in Japan (compared to other countries),” said Hiroaki Muto, an economist at Sumitomo Life Insurance.

“There’s also a lack of clear evidence that a weak yen is hurting the economy. The BOJ has little incentive to tweak policy.”

USD/JPY key events today

USD/JPY investors are waiting to see the state of US unemployment when the initial jobless claims report comes out later today. The report is expected to show a decrease from 244K to 240K.

Japan is expected to release inflation data today. The National Core Consumer Price Index will show price changes in consumer goods and services, excluding fresh food. Japan enjoys some of the world’s lowest inflation, allowing the BOJ to maintain its ultra-loose policy. However, investors expect inflation to rise by 0.1%. A higher or lower increase could cause volatility in the pair.

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USD/JPY technical price analysis: Bullish Above 30-SMA

USD/JPY price analysis

The 4-hour chart shows the price hanging on to the 30-SMA after breaking below. This move could be a retest where bears are too weak to continue the new bearish move. RSI needs to start trading below 50 to show strength in the bears.

However, if this does not happen, the price might break back above the SMA and retest the July 14 resistance at 139.252.

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