USD/JPY likely to appreciate further on BoJ’s stance

The Bank of Japan in its January meeting surprised the markets by adopting negative interest rates under the newly introduced Quantitative and Qualitative Easing program which cut the interest rate on current account deposits by 20bp, to -10bp. The central bank adopted a three-tier system of IOER in which -10bp will be levied only on future marginal increase in reserves. Further it noted that it will cut the interest rate further into negative territory if judged as necessary.

The current BoJ's monetary policy stance with signs of potentially deeper negative rates will likely decrease the concerns about the limits of the QQE program, further aiding to alleviate appreciation pressures on the yen in the near future. However, market factors such as weak global risk dynamics, undervaluation of the JPY, uncertainties about Fed rate hikes weigh on USD/JPY.

"Analysts believe that upward pressure on USDJPY is likely to continue in the near term in the wake of the BoJ's negative rates and the ongoing recovery in global risk assets. Our technical strategist believes the risk is for a move higher in range toward the 122.10 area. A move back below the 118.85 area is needed to suggest scope for resumed downside", said Barclays in a research note.