USD/JPY Rallies as Bank of Japan Strikes Dovish Tone

The USD/JPY has rallied higher as the Bank of Japan Governor’s comments struck a dovish tone, which led to the Yen suffering overnight. The currency pair rose from a low of around 133.30 to a European session high of 135.85.

All eyes were on BoJ Governor Ueda in his first monetary policy meeting, and investors were eagerly hoping for a pivot or more hawkish rhetoric. However, the Central Bank announced that the Yield Curve Control (YCC) Policy would remain unchanged, which was not what investors had hoped for.

Mixed Messaging and Indecision from the BoJ

During the meeting, BoJ Governor Ueda’s comments were mixed, indecisive, and lacked the hawkish rhetoric that some investors had hoped for. The Central Bank also announced an 18-month-long review of how it has conducted its monetary policy, adding to the uncertainty.

The mixed messaging was primarily due to comments that the BoJ might alter monetary policy during the 18-month review period while at the same time stating that it would not hesitate to ease monetary policy further if needed. This has led to concerns among investors about the future direction of Japan’s monetary policy.

USD/JPY Expected to Remain Subdued

Despite the mixed messaging from the Bank of Japan, the USD/JPY has been able to rally higher, driven by a continued recovery in sentiment following a week of positive US earnings for big tech companies. Yesterday’s US GDP data was mixed, but it failed to deter sentiment as concerns around sluggish growth and stubborn inflation remained elevated.

The increasing perception that the Fed may need to keep interest rates higher for longer is likely to offer the US dollar some support in the interim. As a result, the USD/JPY is expected to remain underpinned in the coming weeks.