The recent movement of the Japanese yen exchange rate paired with the US dollar has left many investors disappointed by the end of the week. Following the Bank of Japan’s June meeting, where the interest rate remained unchanged, the USD/JPY pair rose to almost 158.00. This outcome was in line with expectations, as the BoJ had previously raised the rate in March for the first time in seven years. However, market expectations were not met as investors had hoped for a more proactive approach from the BoJ in gradually reducing its balance sheet through government bonds.
Looking at the technical aspects, on the H4 USD/JPY chart, the market has breached 157.47 and is on track to reach 158.74 in a growth wave. Despite this upward movement, a correction down to 157.47 may be expected before potential further growth to 159.36. The MACD indicator supports this scenario, with its signal line pointing upwards. On the H1 USD/JPY chart, a similar growth wave is seen towards 158.40, followed by a possible correction to 157.47 and then a target of 158.74. The Stochastic oscillator on this chart also confirms the potential for further growth.
It is evident that the BoJ’s decision to maintain the interest rate and continue buying Japanese government bonds at the current pace has disappointed investors. The lack of consideration for gradually reducing the balance sheet through government bonds has worked against the JPY and hindered its potential for strengthening against the USD. Despite Governor Kazuo Ueda’s previous confirmation of the regulator’s intention to reduce its balance sheet in the future, the timing of this action remains uncertain. This uncertainty has led to a lack of confidence in the JPY’s ability to appreciate further against the USD.
The recent movement in the USD/JPY exchange rate reflects a missed opportunity for the JPY to strengthen against the USD. The BoJ’s decision to maintain the interest rate and continue with its current monetary policy has disappointed investors who were hoping for a more proactive approach towards balance sheet reduction. Moving forward, it will be crucial for the BoJ to provide clearer guidance on its monetary policy transition to restore confidence in the JPY and support its potential for appreciation against the USD.