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Decline after the Decision of the Bank of Japan on the Interest Rate

12/22/2022 11:25 AM

The USD/JPY pair failed to consolidate above 138.05 and began to decline after the announcement of the results of the last meeting of the Bank of Japan this year.

On Tuesday, the regulator left the interest rate unchanged at –0.10% while expanding the range of allowable fluctuations for the yield of 10-year government bonds: it was previously allowed that it could deviate by 25.0 basis points in both directions from the target level in 0.0%, but changes of 50.0 basis points are now possible. Experts suggest that the department's next action may be to abandon negative rates or control securities yields. At a subsequent press conference, the head of the bank, Haruhiko Kuroda, said that the regulator would stick to the current dovish rhetoric to support economic growth. Despite inflation rising to 3.7% YoY, officials do not consider it necessary to tighten monetary policy but, if necessary, are ready to conduct new foreign exchange interventions such as quantitative easing (QE) to stimulate the economy.

As a result, the USD/JPY pair broke through the support level of 133.90 and tested the next level of 130.90. The fall is likely to continue after some time to the area of 127.90.

The long-term trend is downwards. After testing the support level of 130.90 this week, sellers have taken a break and are accumulating positions: to further decline to 127.90, the price needs to break the level of 130.90.

As part of the medium-term downtrend, the quotes broke through target zone 4 (133.02–132.59), and the next target was zone 5 (129.23–128.87). The trend border is shifting to 135.37–134.93, and if it is tested within the correction, short positions with the first target at the current week's low at 130.65 may be opened.

Resistance levels: 133.90, 135.00, 138.05. | Support levels: 130.90, 127.90.

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