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The demand for the greenback remained broadly firm which made it difficult for a basket of currencies to trade close to the currency. USD/JPY has been moving on a bullish track for the last few days after the dramatic fall during the conclusion of the US election. The dollar continued to soar, hitting a 14-month high against other major currencies. In this effect, the strength of the yen was erased amid the positive notion over the Japanese economy. Recently, BOJ Governor Haruhiko Kuroda lauded the gradual recovery of the country’s economic status as the bank moved closer in meeting its inflation target.

USD/JPY Movement

The USD/JPY stays in a tight trading range after the opening bell on Tuesday. The pair opened at 110.768 with a session high of 110.852 and a session low of 110.766. As of 14:19 UTC, USD/JPY settled at 110.838, advancing 0.5 percent and close to the trading range on Monday night. The pair found support at 110.244 and resistance at 111.336. If the current momentum stays and a fall through occur, the new support would be at 110.045 while a breakthrough will result in a new resistance at 111.336.

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For a wider view, USD/JPY plunged from 101.206 after Trump won presidency as the market got startled by the results. However, as the investors saw the other side of the story, the interest in the US currency came back and the probability of the December rate hike came back. This momentum pulled the greenback even higher as the days passed by. You can see on the chart provided that USD/JPY hovered to 110.758 amid the tight change of figures.

Meanwhile, the Bank of Japan has started the implementation of its newest yield control policy in the middle of the positive outlook on its economy. The central bank of Japan noted in its previous monetary policy meeting that that it would purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent.

“With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.”

Given this fiscal stimulus, the sustainable recovery of the economy is in the eyes of the BOJ. As reported the Governor Kuroda would continue to ease aggressively as he expected the CPI to hit 2 percent in the 2018 fiscal year. Currently, the development of the economy is supported by the preliminary real GDP growth at 2.2 percent on an annual basis and the upbeat final Markit/Nikkei Purchasing Managers Index in the October quarter. Also, the trade data went positive after the slide of the yen momentarily which opened doors for more exports and solid output.

During the BOJ’s Semiannual Report on Currency and Monetary Control, Mr. Kuroda indicated “the Bank seeks to bring about such a decline in real interest rates by controlling short-term and long-term interest rates. It will work toward the formation of the most appropriate yield curve with a view to maintaining the momentum toward achieving the price stability target of 2 percent, while taking account of developments in economic activity and prices as well as financial conditions.”

The BOJ had decided to apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank. Lower interest rates drag the currency on the bullish ground as it becomes unattractive for foreign investments. In-line with this, the decrease of yen’s relative value will likely continue as the Bank refuses to make cash rate adjustments in the near future.

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