Yen rallies on hawkish BoJ hike, USD/JPY falls through 150
July 31 (Reuters) -USD/JPY fell sharply after a hawkish hike from the Bank of Japan, U.S. data also added to downside momentum with the pair breaking below 150 to trade at its lowest level since March, while further weakness is possible so too is a period of consolidation.
The BoJ raised its key policy rate to 0.25% from 0.0-0.1%, which had been indicated by media reports in the lead up to the decision. On JGB purchases, the bank announced plans to cut purchases by JPY 400bln per quarter, reaching JPY 3trln by Q1 2026 from the current run rate of JPY 6trln per month. In reaction, the yen whipsawed, before rallying after hawkish guidance from BoJ Governor Kazou Ueda.
The governor said that the BoJ will keep raising rates as long as the current economic and price outlook is realized. Interestingly, Ueda emphasized that the bank does not have a 0.5% policy rate as a ceiling, while also pointing out that Japanese rates are far below the uncertain levels of the neutral rate.
An unambiguously hawkish stance from BoJ’s Ueda shows that concerns over a weaker yen are now clearly aligned with the Ministry of Finance with both policies moving in the same direction for the currency.
For USD/JPY, a daily close below 150 would likely embolden bears to push towards 148. That said, with the daily RSI at the lowest level since the March 2020 COVID crash, USD/JPY may be set up for a period of consolidation. Resistance now at 151.61 (200DMA) and 152.
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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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