Yen Climbed Despite a Dovish BoJ

As yen’s movement is decided by risk sentiment instead of BoJ, short USD/JPY?

The minor tweak to the Bank of Japan’s forward guidance does not change the big picture that monetary policy is likely to remain extremely easy for the foreseeable future.

Stocks sentiment has been extremely bearish in Asia recently as China stocks continue to fall for the second day.

Risk-off momentum will continue to pressure USD/JPY.

BoJ said it will keep rates extremely low for an extended period, with a new reference to “at least through around spring 2020.”

The muted reaction in the yen suggests the market wasn’t fired up by the news.

Governor Kuroda said the change strengthened its forward guidance and thought the extended period implied a considerably long time. However, the market believed it to be shorter.

Lastly, the BoJ said it will consider introducing a facility to lend ETFs it has accumulated to investors. This suggests some concern about low liquidity and price distortions caused by its purchases.

USD/JPY recently formed a false breakout, wiping short-sellers whose stop loss is around the 111.40 price region. We believe that this pair could fall further after as the false breakout confirms a bearish bias.