On Thursday 21st July, the economic calendar two important events are likely to trigger increased volatility on the EUR and JPY currency pairs. Early in the morning at 6:00 we will learn the Bank of Japan’s interest rate decision. The BoJ is one of the last central banks that has so far chosen not to raise interest rates despite rising inflation.

Will the threat of inflation change the BoJ’s attitude?

In May, inflation in Japan exceeded the planned level by 0.5% and stood at 2.5%. We won’t know how much inflation was in June until Thursday evening but it is expected to be higher than May.

Surely the BoJ is already aware of this data and will take it into account when setting interest rates. A weakening yen for a long time is starting to cause concern, it could lead to the emergence of a recession in the country and tomorrow’s BoJ decision will be extremely important for the yen’s future fate. According to the economic calendar, interest rates are expected to remain unchanged at -0.1 which has been unchanged for 7 years, but if they were to be raised or some more hawkish stance is heard during the press conference the yen could strengthen significantly.

For more on Bank of Japan policy, see previous article : USD/JPY – the bad and the good of a weakening yen for the Japanese economy

Technical view on USD/JPY

Analysing the USDJPY pair from the technical side on the daily chart, we will notice an inside bar formation.

USDJPY Daily – inside bar and downward divergence

The price is still within the range of the candle from 14 July. The MACD with the price chart has formed a downward divergence. If the price breaks out to the downside after tomorrow’s BoJ decision, the declines may head first towards the local trendline ( marked with a blue dashed line on the chart ).


I invite you to my – Thursday’s, 21 th of July at 08:00-09:00 GMT +1 (London time)  live trading session here: https://www.xm.com/live-player/advanced

The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
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