USD/JPY spikes above 129.50 as BOJ keeps interest rates unchanged at -0.1%

  • USD/JPY shoots to near 129.54 on a neutral stance dictated by the BOJ in its monetary policy meeting.
  • The decision is in-line with the market expectations as inflation is well below the target of 2%.
  • The DXY is likely to advance further on higher expectations of the US Core PCE on Thursday.

The USD/JPY pair has attracted significant bids and has overstepped 129.50 as the Bank of Japan (BOJ) has kept a neutral stance on the policy rates. The BOJ has kept the rates unchanged at -0.1%.

The announcement from BOJ Governor Haruhiko Kuroda is in-line with the expectations of the street. Market participants were expecting the maintenance of a status quo amid lower inflation and aggregate demand in Japan. The recent print of the Consumer Price Index (CPI) at 1.2% is the highest in the last three years but extremely lower than the targeted figure of 2%. Therefore, a neutral stance was expected from the central bank.

The Japanese yen is facing the heat of ultra-loose monetary policy recently. Also, the stimulus package of 6.2 trillion yen ($48.2 billion) on additional gasoline subsidies, low-interest loans, and cash assistance announced on Tuesday, clearly states the need to shoring up inflation and aggregate demand in Japan.

Meanwhile, the US dollar index (DXY) is holding above the psychological support of 103.00 amid broader strength. The DXY has printed a fresh five-year high at 103.30 on Wednesday and is likely to elevate further on a higher reading of the US Core Personal Consumption Expenditure (PCE) on Thursday. The US Core PCE is seen at 5.4% against the prior print of 5%. Going forward, investors will majorly focus on the monetary policy action by the Federal Reserve (Fed) next week. The Fed is expected to adopt an aggressive hawkish stance and will elevate the interest rates by 50 basis points (bps).

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