Home Forex Markets The Bank of Japan’s March interest rate decision: to keep interest rates unchanged, the dollar/yen rises above the 119 mark or it is only a matter of time

The Bank of Japan’s March interest rate decision: to keep interest rates unchanged, the dollar/yen rises above the 119 mark or it is only a matter of time

by WOOWinvest
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The Bank of Japan announced its March interest rate decision and kept the interest rate unchanged at -0.1%. The Bank of Japan changed its wording on inflation, saying that inflation may rise significantly in the near future. USD/JPY has little short-term fluctuations, and is still oscillating below the 119.00 mark

During the Asia-Pacific trading session on Friday, the Bank of Japan announced its March interest rate decision, keeping the benchmark interest rate unchanged at -0.1%, in line with market expectations.

On the economic front, the Bank of Japan lowered its assessment of the overall economy. The economy may recover, but some areas of the economy are weak. Consumption, employment and income declined. Therefore, the Bank of Japan kept its interest rate guidance unchanged and continued to implement quantitative easing through yield curve control, maintaining the Bank of Japan’s long-standing and consistent stance of extreme easing.

It is worth noting that, similar to the last interest rate decision in January, the Bank of Japan continued to emphasize the risk of rising inflation in this interest rate decision. Due to the soaring commodity prices caused by the outbreak of the Russian-Ukrainian conflict, the CPI may rise significantly in the near future. Therefore, the Bank of Japan adjusted the wording of inflation expectations, indicating that inflation expectations have risen moderately.

Overall, the Bank of Japan’s March interest rate decision did not cause surprises, and the Bank of Japan’s extremely dovish policy stance remained unchanged. Therefore, after the announcement of the decision, the USD/JPY fluctuated little in the short-term and remained below the 119.00 mark. The Nikkei 225 also maintained gains.

Before the Bank of Japan’s interest rate decision, the Federal Reserve announced its interest rate decision in the early hours of Thursday, Beijing time, announcing a 25 basis point interest rate hike, raising the target range for the federal funds rate to 0.25%-0.5%. This further widened the divergence in policy paths between the BOJ and the Fed. The long-term outlook for USD/JPY will remain bullish from a fundamental interest rate perspective as the market expects the Fed to raise interest rates seven times this year.

USD/JPY has now risen to its highest level since late 2016, and although the pair is temporarily capped at 119.00, it may only be a matter of time before this resistance is broken. After breaking above this level, USD/JPY could rise further towards the 120.00-121.70 range.

USD/JPY 4-hour chart

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