After last week's volatile session, the yen (JPY) declined as the Bank of Japan changed the framework of its monetary policy.
The Japanese regulator adjusted its yield curve control policy and made it easier to hike interest rates. Market participants interpreted these actions as the beginning of a slow transition from decades of massive monetary stimulus.
Since 2016, the Bank of Japan’s short-term interest rate target has been held at minus 0.1% and the 10-year government bond yield at around 0%. This action is known as yield curve control. It has also set an allowance band of 0.5% above and below the 10-year yield target.
The regulator also raised its median inflation forecast to 2.5% for fiscal 2023 after its July meeting, up from a 1.8% forecast in April.
Bank Governor Kazuo Ueda has been forced to tighten monetary policy as inflation has been consistently above the 2% target for 15 consecutive months. However, wages are finally starting to rise after years of stagnation.
A change in yield curve control policy could make the yen more attractive to investors in the long-term.
The U.S. dollar rose on Friday after the U.S. inflation data were released, showing the smallest gain in the past two years. This reinforced the markets' belief in the imminent end of the Federal Reserve's (Fed) rate hike cycle.
This week, market participants will focus their attention on the U.S. non-farm payrolls data, which are scheduled to be released on Friday.
The H4 timeframe shows that the USDJPY currency pair is currently experiencing a broad correction.
In terms of wave analysis, the price is forming the second ascending wave. The strong resistance at 141.95 may hold back the growth potential of the current wave and create opportunities for the development of the third downward wave.
Short-term prospects for USDJPY suggest selling.
The target is at the level of 134,50.
Part of the profit should be taken near the level of 138,75.
A stop-loss could be placed at the level of 145,15.
The bearish trend is short-term, so trade volume should not exceed 2% of your balance.