USDJPY Analysis: Japanese Yen Rallies on Hawkish BoJ Changes

The USDJPY currency pair was trading down over 447.4 pips (3.27%) at writing as the Japanese yen rallied against the US dollar, driven by a slight adjustment by the Bank of Japan (BoJ) during today’s policy announcement.

The BoJ relaxed its yield control curve by allowing its 10-year bond yields to oscillate within a 50 basis point range on either side of its 0% target, lifting the target range from the previous 25 bps. The move surprised markets as many did not expect any changes at today’s policy meeting.

The BoJ’s sudden change triggered bets that the central bank has considered normalising its easy-money policy after refusing to budge even as other leading central banks, such as the Federal Reserve and the ECB, raised interest rates to fight inflation. 

Many could not help but point out that the latest move comes as BoJ governor Haruhiko Kuroda is set to retire in three months after ten years at the helm of Japan’s central bank. He leaves a legacy of easy-money policies that have defined Japan for the past decade. 

Kuroda took over the BoJ and immediately instituted easy-money policies to try and lift the Japanese economy from the prolonged period of deflation that started after Japanese markets peaked in December 1989.

However, the BoJ has not been very successful in stimulating growth within the country primarily because Japan’s economic challenges are driven by its demographics as the number of older adults in the country rises and the birth rate declines. 

The BoJ’s decision had a ripple effect worldwide as Japanese stocks fell and US stock market futures plunged during premarket trading. Japan’s refusal to hike interest rates was critical in keeping borrowing rates low in many countries. 

Therefore, a shift to more normalised policies by the BoJ would lead to higher lending rates globally, driving countries to the brink of defaulting on their debts. Many have interpreted today’s decision as a move towards more normal policies under a new BoJ Governor. 

Still, the Japanese yen was the primary beneficiary of today’s decision as the currency recouped more of its losses and rallied against most of its peers.

*This is not investment advice. 

USDJPY price chart.

The USDJPY currency pair was trading down 447.4 pips (3.27%) as the Japanese yen rallied against the dollar.