BOJ Surprise may create wild yen swing

Mark O'Donnellon 18/01/2023|
2 min read

The Bank of Japan is wrapping up its two-day policy meeting today, and the decision it announces at the conclusion could have huge ramifications for Japanese markets and the yen. There is currently intense speculation that the bank may shift from its current path of ultra-loose policy, or at least offer some guidance concerning future moves. 

Let’s look at the technical situation of the USD/JPY to see what possible move lies ahead.

The trend for USD/JPY has now switched to a downtrend after last year’s bullish run-up. The price is also well below the 200-EMA period, which may imply that we are now in a long-term downtrend. Although, support appears to be building around 127.80. This may be because the market is not entirely sure that the BOJ will signal any change in policy today and risk rocking the economic boat again like it did after its last meeting.

The Smart Money Concepts Indicator shows a ‘Break Of Structure’ or BOS, which is marked in the chart, indicating that the support at 127.80 may have been a lower low. The bullish move may also be considered a retest to the BOS and may reject this area.

With the current downtrend for the USD/JPY in mind, the traders may like to look for a break and close below 126.70, which is strong support for the USD/JPY to continue moving down. Depending on the BOJ announcement, price targets from 124.00 to 121.50 could come into play.

However, a ‘Change of Character’ or CHoCH signal coming from the SMC indicator might result from a dovish BOJ press conference. The CHoCH should be printed on the chart first before considering a trend switch to the upside. The marked-up supply zone by the SMC indicator can be used as a target point if one is considering a buy once we get a rejection at around 126.70.