USD/JPY Moves Towards Multi-Year Highs As BoJ Stays Dovish

Key Insights

• The Bank of Japan left the interest rate unchanged at -0.1%. 
• USD/JPY rallies as the spread between the Fed’s interest rate and the BoJ interest rate widens. 
• A move above 135.60 will push USD/JPY to new highs.

BoJ Is Not Ready To Raise The Interest Rate

USD/JPY is moving back to multi-year highs after the BoJ Interest Rate Decision. The Bank of Japan has left the interest rate at -0.1%, in line with the analyst consensus.

The huge policy gap between the Fed, which is aggressively raising rates, and the BoJ, which remains dovish, continues to drive USD/JPY higher. Interestingly, the BoJ does not look worried about the performance of Japan’s currency. USD/JPY started the year near the 115 level and moved towards the 135 level, so the Japanese yen is down by about 15% against the U.S. dollar in 2022.

It looks that BoJ believes that weak currency will not put Japan’s financial stability at risk. Meanwhile, the weak yen will make Japan’s businesses more competitive. As long as BoJ remains extremely dovish, the U.S. dollar would continue to gain ground against the Japanese yen.

USD/JPY Looks Ready To Test The Resistance At 135.60

USD/JPY found strong support below the 132 level and quickly rebounded to the 135 level.

Importantly, the recent pullback pushed RSI into the moderate territory, Thus, there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

In case USD/JPY manages to settle above the 135 level, it will head toward shte next resistance at the recent highs at 135.60 A move above this level will provide USD/JPY with an opportunity to gain additional upside momentum and move to levels that were not seen since 1998!

On the support side, a move below 135 will push USD/JPY towards the support at 134.60. If USD/JPY settles below this level, it will head towards the support at 134 A successful test of the support at 134 will open the way to the test of the next support at 133.40.

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