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BOJ Keeps Rates Steady, Increases ETF-Buying; Nikkei 225 Closes Lower, USDJPY Unchanged

Nikkei 225 Ends Higher
Nikkei 225 Ends Higher

As expected, the Bank of Japan (BOJ) eased its already-loose monetary policy. However, investors seem unimpressed with the Nikkei 225 erasing its gains while USDJPY barely unchanged.

BOJ Keeps Rates Steady, Buys More ETFs

The BOJ initially had its monetary policy decision scheduled on Thursday but moved it today. Japanese policymakers announced that the central bank’s interest rates would remain unchanged at -0.10%. In order to support its economy which has been crippled by the coronavirus pandemic, the BOJ decided to double its ETF purchases to 12 trillion yen per year. This means that the central bank will buy more exchange-traded funds and corporate bonds to provide liquidity. Alongside this, the BOJ also introduced a new lending program to businesses.

Reaction of the Nikkei 225

Initially, the Nikkei 225 spiked to 17,785.76 following the announcement. However, the stock index quickly gave up its gains and closed with a 2.46% loss for the day at 17,001.82–farther away from the average cost of the BOJ’s ETF purchases. This is probably because investors were expecting a rate cut from the central bank to push banks to lend out more. A rate cut may have helped the Nikkei 225 close the day higher.

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USDJPY Outlook

Meanwhile, USDJPY was little changed following the news. The 1-hour time frame suggests that the currency pair still has room to trade lower. By connecting the lows of March 9 and March 12, we can see that there is trend line support around 105.80. This price also coincides with the 50% Fib level when you draw from the low of March 12 to the high of March 13. Additionally, this area seems to align with the 100 SMA and 200 SMA.

Reversal candles around this area could mean that USDJPY may soon retest its last week’s high around 108.50. On the other hand, a strong close below the 105.00 psychological handle would invalidate the trend line support and could lead to a fall to March 12’s low at 103.30.