The Bank of Japan decided to leave its monetary policy unchanged. The BoJ’s inaction shot the USD/JPY pair through the roof. However, economists at TD Securities expect the 132/133 region to cap.

BoJ stands pat, all eyes on new Governor

“BoJ kept policy unchanged in a unanimous vote quelling speculation of a widening or even dismantling of the YCC band. BoJ revised higher its inflation forecasts and revised growth lower. BoJ will continue large-scale bond buying and increase it on a flexible basis if needed. This suggests that the Bank will defend the YCC target for now.” 

“We look for a policy shift in terms of the band and even the 10y JGB target once there is a new BOJ Governor in place in April but it appears that they have bought time with tweaks of YCC operations for now.”

“Short squeeze in USD/JPY following the BoJ hold. We expect some limitations to this move however as a BoJ policy change is still likely this year. That implies better levels to get short USD/JPY again.”

“For now, we think some patience is required and look for 132/133 to be an important tech pivot near-term (as it coincides with downtrend resistance).”

“We still think the Yen trading bias remains asymmetric (to the upside) over the medium-term.”