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This article is a follow-up to: Yen cautious before BOJ meeting
The USD/JPY pair saw a sharp increase following the decision from the Bank of Japan (BoJ) to keep its interest rates unchanged. This decision led to the Japanese yen plummeting against the US dollar, with the greenback gaining approximately 1%, moving from ¥156.70 to a session high of over ¥158.20.
Picture: JPY losing strength against USD, as observed on the VT Markets app.
Market participants were left disappointed as the BoJ provided no forward-looking guidance on its interest rate policy. The silence from policymakers on whether an interest rate hike is imminent discouraged buying momentum for the Japanese yen.
This lack of clarity creates uncertainty, which has been a significant factor in the recent underperformance.
Such a decision not to raise interest rates keeps the Japanese yen in a precarious position. The central bank has pledged to start dialing back its ¥6 trillion ($38 billion) monthly bond-buying program, a key component of its ultra-loose monetary policy.
This move towards tightening, however, is overshadowed by the absence of a clear timeline for potential rate hikes.
Without concrete guidance from the BoJ, the Japanese yen remains vulnerable to the whims of forex speculators. The lack of a clear policy path means that at any moment, speculators could further drive down its value, exacerbating the decline.
Year-to-date, the US dollar has gained a significant 12% against the Japanese currency, reflecting the ongoing struggles of the Japanese yen.
The USD/JPY pair is likely to remain volatile as markets digest the policy stance from the BoJ. The lack of forward guidance may lead to further speculative pressure on the yen, potentially driving the pair higher.
In the longer term, performance of the Japanese yen will depend on future communications from the BoJ and any indications of rate hikes.
Related article: Interest rate tug-of-war for central banks
If the BoJ provides clearer guidance, it could help stabilize the currency. However, continued uncertainty and global economic factors may keep the Japanese yen under pressure.
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