JPY pairs stable after BoJ bombshell

Major currencies are little changed for the most part as the yen takes a breather after its central bank dropped a festive bombshell on markets yesterday.

There’s not much doubt the timing of the Bank of Japan’s tweak to its policy was done for maximum effect.

Governor Kuroda has shocked the markets numerous times in his near decade tenure, and this was right up there with his finest!

The yen has eased back slightly after USD/JPY closed down 3.8%. This was one of its biggest declines in recent history, with some analysts seeing it as the fourth largest drop since the Plaza Accord in 1985.

BoJ shocker may drive up Yen bullishness in 2023

The surprise tweak to its bond yield curve control policy allows long-term interest rates to rise more and is aimed at easing some of the costs of prolonged monetary stimulus.

Is this now a potential “pivot” by the last remaining major central bank that has steadfastly stuck to an ultra-loose monetary policy regime?

Certainly, the shock shift puts markets on guard for more possible surprises going forward, which means more potential volatility in markets.

Goldman Sachs say the BoJ’s next move could be removing the negative interest rate as it puts greater emphasis on the need to enhance market functioning.

The BoJ policy tweak pushed all of the yen pairs down over 3% yesterday.

The bank’s role as a perma-dove has been a key driver of yen weakness this year.

If this is the first step of a change in the bank’s bias, this would massively alter the outlook for the yen in 2023.

READ MORE:

• (20 Dec) Why is the Japanese Yen soaring?
   
• (16 Dec) Week Ahead: Can USDJPY break below 200-day SMA?
   
• (21 April) Why is the Yen so weak?

EURJPY steadies after Tuesday's steep drop

EUR/JPY has been trying to push decisively above previous highs from June and September over the last few months.

But Tuesday’s plunge has taken it sharply lower through the 100-day SMA at 142.42.

The 200-day SMA is at 140.143 and is being tested now to determine whether its better suited as the immediate support or resistance level.

Below here is a major Fib level of the year’s rally at 139.228, which offered some measure of support for EURJPY during yesterday's stunning plummet.