Forex Market: USD/JPY gains strongly as BoJ keeps rates intact, maintains yield curve control

Key points

USD/JPY gained ground decisively on Friday, while being not far from recent 29-week peak, after the Bank of Japan maintained its ultra-accommodative policy stance and forecast inflation in Japan might ease later during the year.

The BoJ left its benchmark short-term interest rate without change at -0.10% at its Friday policy meeting and also kept a 0% cap on 10-year bond yields set under its yield curve control policy.

“While the decision itself was not a major surprise, a few participants … had expected a YCC adjustment, and the financial market reacted with higher stock prices and a weaker yen,” Hirofumi Suzuki, chief Forex strategist at SMBC, was quoted as saying by Reuters.

“The focus will now be on whether the YCC framework will be adjusted along with an upward revision to the inflation outlook at the monetary policy meeting in July.”

BoJ policy makers said they would patiently continue with monetary easing and respond to economic uncertainties and price dynamics.

Japan’s central bank seeks to achieve a price stability target of 2% in a sustainable fashion, along with an increase in wages.

The BoJ’s move sharply contrasted the ECB’s policy decision a day ago, as the latter raised interest rates to a 22-year high and signaled more rate hikes to come.

Meanwhile, dollar gains seemed capped after a string of soft US macro data, despite that the Federal Reserve indicated this week interest rates might still need to rise by 0.5% by year-end.

As of 7:05 GMT on Friday USD/JPY was gaining 0.57% to trade at 141.055. Yesterday the major Forex pair went up as high as 141.504, which has been its strongest level since November 23rd 2022 (141.614).