The US dollar has moved higher against the Japanese yen currency after the Bank of Japan shocked final markets and made absolutely no changes to its fiscal policy earlier today.
The USDJPY pair has spiked above the 131.00 level after trading below the 128.00 level at the start of the week. The GBPJPY pair and AUDJPY pair have also leapt higher this morning.
In a broader sense, the Japanese Yen weakened over 2 percent in the aftermath of January’s Bank of Japan announcement. The US dollar index is also trading much higher today.
Basically, the BoJ left all policy settings unchanged this month. This includes the policy balance rate (maintained at -0.1%) and the 10-year bond yield target of about 0%. Policymakers also mentioned that they would keep on with bond purchases with a degree of flexibility.
The Fed are likely to keep the foot on the rate hike pedal and may enact a less 50 or 25 basis point hike February. While the Japanese central bank will stand pat. This is why USDJPY jumped.
The key takeway this week is that the Japanese central banks probably won’t tolerate inflation over two percent, but they see inflation forecasts as lower than two percent so no change at the moment.
According to the ActivTrader Market Sentiment tool some 49% of traders are bullish towards the USDJPY pair, which strongly hints at range bound trading, which is not the case currently.
Potentially, we could see a new range between the 130.00 and 132.00 area based on this current sentiment metric.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has nearly moved towards the middle of its price range, inside a falling price channel.
According to the overall size of the bearish pattern we could likely see a short-term range of between 128.00 to 133.00.
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USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair has formed a large a large head and shoulders style pattern. These are amongst the most reliable bearish reversal patterns, and it has been invalidated.
According to technical analysis we may see a correction towards the 135.00 level at some point, which is the pairs 200-day moving average. However, the bigger picture is still a 127.00 to 120.00 price drop.
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