The Bank of Japan reduced the deposit interest rate to the negative level of -0.1% and left the door for more cuts open.
The regulator’s decision to turn to an even more aggressive loose monetary policy is caused by the turbulence at global financial markets. Concerns about slowing global economic growth, the problems of China and the decline of oil prices – all of it prevents Japan from attaining the 2% inflation mark, which is one of the key goals of Japanese central bank.
The fact that the Bank of Japan started to ease policy after a long pause means that it aims to fight the yen’s strength. The market players will now expect more easing from this central bank. Note, however, that the Bank of Japan’s decision wasn’t unanimous: 4 members votes against such step.
USD/JPY corrected up to 121.40 – resistance line, which used to act as support in 2012-2015. The next resistance is at 121.85/122.00 (December 2014 high, March 2015 high), as well as 122.80 and 123.50 (resistance line, going through June, August highs). Support is at 120.00, 118.70 and 117.00.
Next week there won’t be any market moving publications in Japan, so focus on Chinese statistics: manufacturing PMIs on Monday and services PMI on Wednesday. Better data will be positive for USD/JPY, while worse figures will have negative impact.