The yen fell for a second day as the Bank of Japan maintained its easy monetary stance even as more policy makers around the world seek to exit stimulus. Japan’s currency headed for its biggest weekly loss in more than a month as economists pushed back expectations of when the BOJ will exit its record stimulus program. 

As widely expected, the BOJ maintained its pledge to guide short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero under its yield curve control  policy. It also left unchanged a loose pledge to keep increasing its bond holdings at an annual pace of 80 trillion yen.

“Private consumption has shown increased resilience against a background of steady improvement in the employment and income situation,” the BOJ said in a statement announcing the policy decision. Friday’s statement took a more upbeat view than that of the previous meeting in April, when the BOJ said consumption was “resilient”. Private consumption has been a soft spot in Japan’s otherwise strengthening economy, with its weakness blamed for keeping inflation subdued by discouraging companies from raising prices.

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USDJPY rebounded, but the spread points to a fair value at 110.00. That means that a greater upward move of the US yields is needed for the pair to rally further. source: Bloomberg

Nodding to growing signs of recovery in emerging economies, the BOJ said overseas economies were “continuing to grow at a moderate pace as a whole.” That was a more optimistic view than in April, when it pointed to some weaknesses in emerging economies. The BOJ meeting followed in the wake of the US Federal reserve’s rate review on Wednesday, when it raised interest rates for the second time in three months and outlined a plan to reduce its massive balance sheet. That led to a rebound of the US dollar and a fall of Japanese Yen.

Looking at the chart we may notice that the USDJPY is breaking from the downward channel, which could be a bullish sign. What’s more, a now higher low may have been posted, which also bodes well for the pair. In the near term a move towards 112 or even 113 shouldn’t be ruled out, but a support from the interest rate market is needed for the pair to rally further.

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 Technical situation points to a greater rebound of the pair, but fundamentals remain mixed which should limit potential gains.