Bank of Japan Summary (January 17 - 18, 2023)
- The BoJ must conduct a policy review at some point, although the prudent move now is to maintain loose monetary policy along with yield curve control
- When the time comes to move away from dovish policy, the BoJ must assess whether the market is ready for a change
- There is still some time left to reach the BoJ's monetary policy target, and markets should accept this
- Japan's consumer inflation is not expected to slow down until the second half of next year
- The key is to produce a healthy economic cycle and achieve the BoJ's policy target, one banker signaled, adding time is needed to analyze the impact of the December move
An important conclusion from the BoJ's summary is that the bank is indeed allowing for a possible change in extremely dovish monetary policy although it is postponing it to the indefinite future. This is likely to encourage the market to continue speculating on the yen
The Bank of Japan's chief currency diplomat, Masato Kanda, also gave an interview to Reuters after the Bank of Japan Summary:
- Violent currency movements driven by speculative trading like those that occurred on the yen last week are unacceptable
- The BoJ seeks price stability, while Japan's Ministry of Finance seeks stable currency movements. Excessive currency volatility and irregular movements can threaten economic and financial stability.
- Exchange rates are largely determined by market forces. It is important that currency markets move steadily in response to economic fundamentals.
The USDJPY has crossed the 38.2 Fibonacci retracement of the upward wave initiated on January 16, and is once again heading for the vicinity of the SMA 100 (black line) and the 23.6 Fibo retracement, which indicates a possible retest of the psychological level of 130 points. In the event that a downward impulse is triggered, the first support level is around 129 pts, which was defended today. The next noteworthy levels are 61.8 and 71.6 Fibo near 128.7 and 128.3 points.
Source: xStation5