The Bank of Japan surprised economists and investors at its December meeting by widening the range of 10-year bond yields to diapason from -0.5% to 0.5%. Amidst this news, the yen increased by a record 3.8% that day. According to the Bank of Japan (BoJ) survey conducted this month, the decision of widening was made after investors' estimates of the performance of Japan's bond market became negative.
The BoJ's shocking move was aimed at preserving stimulus, not changing the policy trajectory, according to a summary of views at a December meeting that helped weaken the yen. One of the board members added that the measure was aimed at making the current monetary policy easing more stable. Thus, it would help to improve the functioning of the bond market. He also ruled out the need to revise the BoJ's inflation target level of 2%, which had been the subject of much discussion before the meeting.
The summary confirms Kuroda's message that the move announced by the BoJ was not the purpose of the policy review. Therefore, traders' suggestions were wrong.
This news may cause the yen to weaken. It is a possible scenario since traders have been suggesting the changing of BoJ’s policy for more than a week.
Yesterday the last of this year macrostatistics on the Japanese economy came out. November's unemployment rate remained within expectations, it was 2.5%. The volume of retail sales, on the other hand, turned out to be 2.6%. It is a worse result compared with the forecast of 3.7% and the previous figure of 4.3%. The retail sales figure is the main indicator of the health of the economy. Its decline negatively affects the yen since the data decreases the chances of the BoJ’s policy change.
According to the technical analysis, the yen formed an uptrend, which tried to break up. This movement is aimed at the growth to the resistance level (the previous uptrend boundary), which was broken down as soon as the BoJ announced changes at the last meeting. It is level 135.5. A stop-loss can be placed at the breakdown of the trend boundary, down at the value of 133.3.
Growth of the currency pair USD/JPY:
Take profit – 135,5
Stop-loss – 133,3