USDJPY forms bullish flag after BOJ interest rate decision

USDJPY yen
USDJPY yen

The USDJPY is little changed today as traders react to the BOJ interest rate decision. The pair is trading at 107.25, which is a few pips above the intraday low of 107.200.

BOJ rate decision

At the conclusion of the two-day meeting started yesterday, the BOJ did what most people were expecting. The bank left interest rate unchanged at -0.10%, where it has been for the past few years. It also pledged to continue supporting the economy by conducting a yield curve control. This is a simple process in which the bank buys as much government bonds as possible to ensure that the yield of the ten-year remains at 0%.

The most important statement today was the bank’s views of the economy. The members now expect that the economy will contract by 4.7% this year. This number is the median estimate of all the 9 members of the committee. Individually, their forecast for the year ranges between -4.5% to -5.7%.

They are also optimistic that the economy will recover by 3.3% in 2021 and 1.5% in the following year. Also, the bank expects that the core CPI will fall to 0.5% this year before rebounding to 0.3% and 0.7% in the next two years. These numbers mean that the BOJ will have trouble raising rates since its target inflation rate is at 2%.

USDJPY technical analysis

The USD/JPY is trading at 107.25, which is along the 100-day and 50-day exponential moving averages on the four-hour chart. The price is also between the 23.6% and 38.2% Fibonacci retracement level. The pair also seems to have formed a bullish flag as shown below. This means that the price may resume the upward trend as bulls target the next 38.2% retracement at 107.52.

On the flip side, a break below the lower side of the flag at 107.00 will invalidate this prediction. It will send a signal that there are more sellers in the market, who will be keen to push the price lower.

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USDJPY forecast

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