USDJPY Down on Risk Aversion and BOJ Rate Statement
Earlier today, as expected, the Bank of Japan (BOJ) kept its interest rates unchanged at -0.10%. Its 0.0% target for 10-year government bonds and bond purchases also remained steady. According to BOJ Governor Haruhiko Kuroda, rates will stay where they are or maybe even go lower to sustain price momentum.
The central bank upgraded its GDP forecast for 2020 from 0.7% to 0.9%. This upward revision was mostly due to optimism surrounding the US-China trade deal which could help boost growth. On the other hand, Japan is expected to clock in a 1.0% CPI rate for the year, down from 1.1%.
JPY-Strength Ahead of Rate Statement
The reaction of USDJPY to the BOJ statement has so far been muted. This is because the BOJ did not announce anything that came as a surprise to market participants. The currency pair fell ahead of the announcement due to risk aversion stemming from concerns about the coronavirus that started in China.
Investors have begun to be risk-averse to news of the SARS-like virus that has now spread to four countries (China, Japan, Australia, and Thailand). It has reportedly infected 200 people and resulted in 4 deaths. Overnight, the Wolrd Health Organization (WHO) called for an emergency meeting to address containment. This is crucial because the Chinese New Year is happening this weekend and people are expected to travel more. Failure to impose precautionary measures could lead to the virus spreading more aggressively.
On the hourly time frame, we can see that USDJPY is consolidating following its drastic drop. This is what would qualify as a bearish flag pattern. When you enrol to our forex trading course, you will learn that a downside break of the consolidation would mean that there are more losses ahead for USDJPY.