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The USD/JPY is in a tight range ahead of the Bank of Japan (BOJ) interest rate decision scheduled for tomorrow. It is trading at 103.83, which is slightly below this year’s high of 104.40.
Bank of Japan decision
The BOJ will be the second major central bank to deliver its interest rate decision this week after the Bank of Canada (BOC). Economists polled by Reuters expect that the bank will leave interest rate intact at -0.10%.
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It will also continue with its asset purchases. But some analysts believe that it will start tapering these purchases from $115.5 billion a year. Also, economists expect that the BOJ will continue with its yield-curve control program. In a note, analysts at Rabobank said:
“Last month the BoJ launched another review of monetary policy, the results of which are expected in March. Speculation has been rising as to what changes this could bring. One impact is that this week’s regular policy meeting is unlikely to bring any fresh policy changes.”
The BOJ decision comes at a difficult time for the Japanese economy. Inflation is non-existent and economists predict that the economy tumbled by 5.5% in 2020. Worse, the government has announced an expanded state of emergency as the number of coronavirus cases continues rising.
Meanwhile, the USD/JPY has been wavering due to the weak US dollar. The dollar index has dropped substantially this week as traders price-in more stimulus from the Biden administration. Yesterday, Janet Yellen said that the country will need a significant stimulus package to weather the current storm.
USD/JPY technical outlook
The USD/JPY has been on a slow downward trend as shown in the daily chart above. During the decline, the pair has formed a descending channel that’s shown in blue. It also seems to have formed a bullish flag pattern that’s shown in green.
Also, the average true range, which is often a sign of volatility, has continued to fall. This is a sign of a potential calm before a storm. Therefore, the pair will possibly break-out above the upper side of the channel tomorrow. If this happens, the next key resistance to watch will be at 105.00, which is a strong psychological level.
