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Forex Market: USD/JPY just above a seven-month low ahead of Bank of Japan policy decision

USD/JPY traded in proximity to a seven-month trough on Tuesday, as market players awaited the outcome of the Bank of Japan’s two-day policy meeting to be concluded tomorrow.

Speculation has emerged that the central bank could introduce a shift to or even end its yield curve control policy, as 10-year Japanese bond yields have been pushed above the BoJ’s ceiling of 0.5%.

According to IG Markets analyst Tony Sycamore, there are three possibilities:

– first, the BoJ to leave policy settings without change;
– second, the BoJ to introduce a tweak similar to the one witnessed in December to widen the 10-year yield target band;
– third, the BoJ to completely abandon yield curve control, which could trigger the most considerable market reaction.

“The yen would explode higher, Japanese government bond yields would explode higher and global yields would go higher,” the analyst said.

As of 9:06 GMT on Tuesday USD/JPY was inching up 0.03% to trade at 128.50. Yesterday the major Forex pair slipped as low as 127.21, which has been its weakest level since May 30th 2022 (126.86).

EUR/JPY was up 0.08% to trade at 139.148, while bouncing from last Friday’s one-week trough of 138.012.

Meanwhile, GBP/JPY was gaining 0.41% to trade at 157.252, also rebounding from a 1 1/2-week low of 155.639.

The US Dollar Index was down 0.24% on the day to 102.310, after touching a seven-month low of 101.773 on Monday.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 128.18
R1 – 129.15
R2 – 129.83
R3 – 130.80
R4 – 131.76

S1 – 127.50
S2 – 126.53
S3 – 125.85
S4 – 125.16

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