USD/JPY Fundamental Daily Forecast – Traders Shrug Off BOJ, Focus Remains on Treasury Yields, Risk Sentiment

The Dollar/Yen is edging lower on Thursday amid positive risk sentiment as Asian stocks followed U.S. equities in rising to new record after Joe Biden, who has laid out plans for a $1.9 trillion pandemic relief package, was sworn in as president. The Japanese Yen traded 103.335 per dollar, stronger than levels above 104.086 against the greenback seen earlier in the trading week.

In other news, the Bank of Japan kept monetary policy unchanged on Thursday while revising up its economic forecast for next fiscal year.

At 09:40 GMT, the USD/JPY is trading 103.430, down 0.117 or -0.11%.

Bank of Japan Leaves Interest Rates Unchanged Amid Gloomy Outlook

The Bank of Japan (BOJ) left its main policy unchanged after forecasting the economy will regain more lost growth than previously thought once it starts to recover from the current state of emergency.

The BOJ held its interest rate and asset buying setting intact, according to a statement from the central bank on Thursday. All economists surveyed by Bloomberg predicted no change in the bank’s main policy levers ahead of a policy review in March.

While the bank took a gloomier view of the current state of the economy as record cases of COVID-19 keep a state of emergency in place, the BOJ concluded that weaker growth at the end of the current fiscal year and a government stimulus package announced last month will result in a stronger rebound in the year starting April.

“The growth outlook, especially for fiscal 2021, has been lifted somewhat considering the impact of the government’s economic policy,” BOJ Governor Haruhiko Kuroda said at a briefing after the board met. “There is a high degree of uncertainty, though, because the outlook can change with the trajectory of the pandemic.”

Ahead of the meeting, economists had taken the view that the bank would likely hold off on any action until it completes a review of policy at its next gathering in March. By then the economic landscape and the trajectory for the pandemic should be much clearer.

Daily Forecast

Japanese Yen traders showed little reaction to the largely in-line outcome of the meeting. There primary focus is on risk demand and Treasury yields.

In this current turned around trading environment, increased demand for riskier assets tends to drive investors into the Japanese Yen and away from the safe-haven U.S. Dollar.

However, another spike higher in U.S. Treasury yields would help boost the USD/JPY.

For a look at all of today’s economic events, check out our economic calendar.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.