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A report stating that the Bank of Japan (BoJ) is pondering on additional monetary easing steps had the Japanese yen retreat the green territory. The easing measures included axing interest rates even deeper into the negative.

This event had USD/JPY change hands, currently up by 0.58% to 103.17.

In an article by the Nikkei business daily, it was said that the BOJ is considering to make its negative interest rate policy the core of future monetary easing, vowing to weigh additional cuts as expansions to asset buying are drawing near their limits.

Masafumi Yamamoto, Mizuho Securities’ chief forex strategist, said that “The view was already there that the BOJ could steepen Japan's excessively flat yield curve and deepen minus rates to lessen the negative impact on financial institutions. But it appears that such a view had not been fully priced in by the market.”

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Dollar Recovers

Meanwhile, the US dollar recovered and extended overnight gains, hitting an eight-day peak of 103.200. The rebound was triggered by remarks of a Federal Reserve official on Monday, which prompted fresh doubt over the timing of future US interest rate hikes.

It was on Monday when Fed Governor Lael Brainard cautioned against hiking rates too hastily. In a speech, Brainard claimed economic progress continues in the country, but the logical option for the Fed is to continue keeping policy loose.

The greenback treaded cautiously against the Japanese currency, left with just a week until the US central bank’s and BOJ’s meetings on September 20-21. This means there is ample time for talks over the policy to agitate the market.

“The media report is about the BOJ considering a deeper cut in negative rates, but in a seemingly broader time frame. As such, expectations that the BOJ would ease next week have not risen excessively,” Kyosuke Suzuki stated, director of forex at Tokyo’s Societe Generale.

“The moves we are seeing today are irregular, with dollar/yen gaining despite weaker stocks. It is safe to say short-term flows are driving movements for now.”

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USD/JPY Analysis

With the dollar bouncing off previous lows on Fed comments and the yen weakening on rate cut worries, USD/JPY was seen trading higher on Wednesday.

As of 10:32 GMT, the US dollar index is dipping a meager 0.03% to 95.51, but nonetheless is still stronger than the yen. USD/JPY tacked on 0.58% to 103.17.

In a daily timeframe of the pair, the Bollinger bands are seen to narrow in the current candle, signaling a breakout soon. This would mean the price range will be limited or stay close to the current price until the breakout occurs.

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Still, looking closer by an hourly time frame, the pair was fallen off the rise it had hit 09:00 AM earlier. While the yen remains low, the US dollar also hasn’t escaped from the red zone so far. Still, with surrounding fundamentals, USD/JPY is expected to continue with the current rally as the sentiment with BOJ slashing rates into the negative remains.

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