Japanese Yen Plunges Vs US Dollar As BOJ Keeps Policy Settings Unchanged

On Friday, the Japanese Yen fell sharply against the US dollar after the Bank of Japan left interest rates unchanged and maintained its current bond-yield curve control policy settings.

In his last meeting as the BOJ Governor, Haruhiko Kuroda left policy settings steady, in line with expectations, given the Japanese central bank adjusted the yield band as recently as December. Incoming BOJ Governor Kazuo Ueda has said the central bank must maintain its ultra-easy policy until there are signs that inflation has sustained above BOJ’s 2% target.

Ueda has attempted to cool speculation of an earlier-than-expected normalization of policy rates. Still, policy tweaks could come in for financial markets sooner rather than later, given the distortions caused by the yield curve control policy and inflation at a four-decade high. The focus now shifts to the next BOJ meeting, April 27-28, Ueda’s first meeting as the chair.

Ueda has said he has ideas on how the central bank could exit its massive stimulus. Still, monetary tightening is possible only if significant improvements are made in Japan’s ‘trend inflation.’ The immediate focus for markets shifts to US jobs data due later today – growth of the non-farm payroll likely slowed to 224,000 in February, slower from 443,000 in January, and unemployment is expected to hold near the five-decade low of 3.4%.

In his semi-annual testimony to Congress, US Fed Chair Powell stepped up hawkishness, saying the ultimate rate peak is likely higher than expected and the central bank is prepared to increase the rate hikes, depending on incoming data.

The failure to sustain gains this week above a brief break above resistance at the early-March high of 137.09 indicates that USD/JPY’s six-week-long rally is losing steam. However, the pair would need to break below support on a horizontal trendline from mid-February at about 135.25 to confirm that the upward pressure is fading.