USD/JPY Outlook: Yen Drops After BOJ Keeps Policy Unchanged

• On Friday, the Bank of Japan (BOJ) maintained its ultra-easy monetary policy.

• The BOJ withdrew a commitment to retain interest rates at “current or lower levels.”

• Core consumer prices in Tokyo, the capital of Japan, increased by 3.5% in April.

Today’s USD/JPY outlook is bullish. The yen collapsed after the Bank of Japan (BOJ) maintained its ultra-easy monetary policy on Friday. However, the bank abandoned its commitment to maintain low-interest rates.

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As anticipated, the BOJ announced it would keep interest rates at historically low levels. Its yield curve control (YCC) policy would also remain unchanged.

The central bank announced it would “conduct a broad-perspective review of monetary policy.” However, it withdrew a commitment to retain interest rates at “current or lower levels.”

This study will likely take one to one and a half years. It will lay the framework for Ueda to wind down his predecessor’s stimulus program gradually.

The meeting has considerably tempered expectations of a policy change. Investors felt the outcome was dovish, hence the decline in the yen.

However, on Friday, government data revealed that core consumer prices in Tokyo increased 3.5% in April from a year earlier. This value exceeded market expectations and signaled a broadening of inflationary pressure. 

The US dollar gained ground on Friday in the foreign exchange market after data showed persistently high inflation. It supported expectations for a 25-basis-point rate increase at next week’s FOMC meeting.

USD/JPY key events today

Investors are awaiting the Core PCE price index from the US, which will show the state of inflation in the country. This report will also influence rate hike expectations as it is the Fed’s preferred inflation gauge.

USD/JPY technical outlook: Bulls keep control with a new high

USD/JPY is on the rise in the 4-hour chart. This move comes after the bears failed to break and close below the 133.50 support level. The price was rejected below this level, allowing bulls to return and push the price back above the trendline. This is a sign that it was a false breakout.

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The price also broke above the 135.01 resistance level, which was the previous high. A higher high further confirms the strong bullish bias. Bulls are now approaching the 136.01 key level. At this point, the move might pause as the RSI is in the overbought region.

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