What's next after the Bank of Japan decision
For the September meeting, we are not only questioning what it will do in terms of cooperation after reviewing the fiscal stimulus measures, but also the state of its basically meaningless 2% inflation target. The BoJ may offer some kind of forward guidance on the sustainability of the current QQE policy.
Today's policy decision completely disappointed expectations, but the initial reaction of the USD/JPY was not that negative as the rate was also supported by the weaker demand for selling by hedgers after the recent rise. In addition to bank stocks rebounding on the postponement of expanding the NIRP, increasing ETF purchases pushed the Nikkei 225 up, which helped restrain yen appreciation.
However, in our view, the USD/JPY remains on a bearish trend, and has again shifted back to the 100 to 105 range.
Unless the rate is supported by a succession of strong US data releases, and from a technical perspective as well, we think that the USD/JPY will continue to trend in a range that leaves it vulnerable to downside risk that could take it to 100 or lower.
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