USD/JPY Analysis: Playing with Fire Continues

Yesterday, the Nikkei newspaper reported that the Bank of Japan is considering adjusting its yield curve control (YCC) policy.

This provoked a strengthening of the yen (1). The USD/JPY rate dropped to a two-week extreme of 148.8 per US dollar in anticipation of news from the Bank of Japan.

The news followed this morning (2). The Bank of Japan kept interest rates at -0.1% and also said the 1% ceiling on the benchmark 10-year yield would be an upper bound rather than a hard limit.

As a result of the Bank's decision, the USD/JPY rate returned to the area above 150 yen per US dollar.

Wherein:
the price formed a false breakout of the ascending channel (shown in blue). The decline to the level of USD 149 formed a trap for the bears, who are forced to come out of losses today, thereby pushing USD/JPY even higher;
if the momentum continues, the price may reach the channel median line.

Thus, the upward trend may develop, the main danger for which will be (usually unexpected) statements by officials from the Ministry of Finance and/or the Bank of Japan, which could provoke sharp fluctuations like what has happened in recent days.