- The Dollar retraces the Asian session's gains and returns to the mid-range of 152.00.
- Investors are taking US Dollar profits ahead of key US releases this week.
- Political uncertainty in Japan suggestts that the BoJ will stand pat on Thursday.
The US Dollar has retraced most of the ground taken following the release of the Japanese election results, retreating from three-month highs at 153.75 to 152.50 so far.
The Yen dropped across the board during Monday’s Asian session as the elections in Japan delivered a significant defeat to the ruling party. The result opens an uncertain political scenario and puts into question the government’s support for the BoJ’s normalisation plans.
This scenario practically confirms that the Bank of Japan will keep interest rates on hold at its Thursday’s meeting.
The Dollar eases ahead of key US releases
The US Dollar, on the other hand, has opened the week on a somewhat softer tone. Investors might be trimming some USD longs, getting ready for a busy week, with US GDP. the PCE Prices Index and the Nonfarm Payrolls report, scheduled on the coming days.
The technical picture shows the broader bullish tone intact although the bearish divergence on the 4-hour RSI warns about a deeper correction. Supports are at Friday’s low, 151.60 ahead of 150.70. Resistances are 153.75 and 155.10.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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