BOJ Lays The Groundwork For Tightening

Subtle Shifts From BOJThe Bank of Japan meeting earlier this morning was a very interesting affair altogether, and for those who rose early/or stayed up late, we were treated to plenty of volatility. While no policy adjustments were made, there were some noteworthy tweaks in operations which caused a storm. As expected, the BOJ held its interest rates, QE levels and YCC targets unchanged. However, the bank noted that it would be conducting its YCC program with wider flexibility going forward. The bank explained that doing so would allow it to respond more “nimbly” to market stresses, including rising inflation.YCC Program to be More FlexibleThe move has widely been interpreted as laying the groundwork for a forthcoming policy shift. With inflation still above the bank’s target, speculation is growing that the BOJ will soon be forced to formally tighten monetary policy. Along with the language around its YCC program, the BOJ also noted that it would be purchasing 10y JGBs at 1%, instead of the previous 0.5%. A move which has again been seen by the market as stealth tightening, allowing for yields to now rise as high as 1%, despite the bank’s noted 0.5% target.Bullish JPY RisksLooking ahead, traders will be paying close attention to incoming Japanese data as well as BOJ commentary. The BOJ has been consistent in reaffirming its commitment to maintaining easing though has noted that a shift in policy might be appropriate into next year. Traders will now be very sensitive to the risk that such a shift might come sooner, likely to keep JPY supported near-term.Technical ViewsUSDJPYFor now, the market continues to hold on the 138.03 level, ahead of the bull channel lows. This is a key area for bulls to defend with a break lower here opening the way for a move to 132.91. To the topside, 142.21 is the local resistance to break. Interestingly, we have an active sell signal in the Signal Centre today from 139.65 targeting a move back down to 137.80 next.Signal Centre is a proprietary trading-signal suite offered to all Tickmill traders. Signal Centre combines human and AI driven analysis to offer traders actionable entry and exit points that they can use for their trading strategies. Signals are offered across a range of asset classes including Forex, Stocks, Commodities and Crypto.