• Bank of Japan to make announcement on Tuesday

The Japanese yen is in a holding pattern on Monday as the Bank of Japan holds a two-day meeting today and Tuesday. In the European session, USD/JPY is trading at 148.05, down 0.08%.

The yen has been on a rollercoaster in recent weeks. In December, the yen took advantage of a slumping US dollar and surged 4.85%. Those gains have been squandered as the dollar has rebounded in January and jumped 5.1%. On Friday, USD/JPY touched a high of 148.80, its highest level since November 28. The 150 level is not too far away and if the yen continues to lose ground, concerns will mount that the Ministry of Finance could intervene to prop up the yen.

Bank of Japan unlikely to make a move on Tuesday

The Bank of Japan will wrap up its policy meeting on Tuesday, and any hints of a shift in monetary policy would likely send the yen sharply higher. The markets aren’t expecting the central bank to change policy settings, although the BoJ, which isn’t known for transparency, has surprised the markets before.

The BoJ is expected to abandon negative rates, but Tuesday’s meeting doesn’t seem to be the right timing. Inflation has been easing and the economy remains fragile. The major earthquake on January 1 has contributed to the markets lowering expectations of a policy shift at this meeting. As well, the national wage negotiations take place in March and the BoJ would prefer to analyse the results of the wage talks before making any policy changes. This would point to the April meeting as being more ripe for a major announcement. Even if the BoJ stays on the sidelines tomorrow, investors will have plenty to digest, including updated inflation reports, quarterly economic projections and Governor Ueda’s follow-up press conference.

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USD/JPY Technical

• USD/JPY tested resistance at 148.28 earlier. Above, there is support at 148.71
• There is support at 147.74 and 147.31

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