USD JPY sustains breakout climb ahead of Bank of Japan

The European Central Bank kept interest rates unchanged as widely expected on Thursday, but also delivered comments that were generally considered more dovish than expected by euro traders. Among other remarks, ECB President Mario Draghi stated that “all Governing Council members reported on the situation of their own countries. All experienced some moderation in growth or loss of momentum.” Draghi also said that “we continue to expect interest rates to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases." With respect to inflation, Draghi also leaned dovish, stating that Eurozone core inflation has not yet shown an upward trend and that ample monetary stimulus would still be required.

These and other comments seemed to back away from both interest rate hikes within the foreseeable future as well as any well-defined end to QE stimulus, which helped to place further pressure on an already-struggling euro. This euro pressure also helped to keep the recently strengthening US dollar supported despite a pullback in US government bond yields on Thursday.

This continued strength in the dollar, combined with overall recent weakness in the Japanese yen, has prompted a sharp breakout for USD/JPY. The yen has weakened across the board in the past month, falling against both the euro and US dollar. The yen has fallen especially quickly against the sharply rebounding dollar, boosting USD/JPY well above key previous resistance around 108.00 this past week.

On Friday in Tokyo, the Bank of Japan is slated to follow the ECB with its own policy decision and announcement. Like the ECB, the BoJ is also not expected to make any major policy changes, as is typically the case, but is scheduled to release its quarterly outlook report on growth and inflation. In the past, changes to the outlook have impacted yen movement. As it currently stands, the widening differential between Federal Reserve and BoJ monetary policy expectations has helped lead to the noted month-long surge for USD/JPY.

While the currency pair may be due for a pullback or consolidation after its steep recent run, the clear and potentially growing divergence between the Fed and BoJ with respect to interest rates could be further highlighted on Friday’s BoJ decision, which could then boost USD/JPY even higher. Provided the pair remains above the noted 108.00 level (now as support) amid Friday’s BoJ decision as well as the US GDP release, the USD/JPY bias remains bullish, with the next major upside target around the 111.00 resistance level.

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.