The USD/JPY fluctuated as the Bank of Japan announced that they would adopt a more flexible approach to implementing YCC..

The USD/JPY exchange rate fluctuated within a range of nearly 400 pips during the Asian trading session on Friday (July 28), following the announcement of the Bank of Japan's (BoJ) policy meeting results. After reaching its highest level at 141.89 and the lowest level at 138.06, USD/JPY is currently trading in the range of the mid-138.70s.

USD/JPY

This morning, the Bank of Japan (BoJ) decided to maintain the interest rate at -0.1% and continue with yield curve control (YCC), in line with market expectations. The initial statement disappointed market participants hoping the BoJ would begin normalizing its policy, causing USD/JPY to soar up to 141.89. However, the market was later surprised by the continued exposition regarding YCC.

The BoJ stated that they will adopt a more flexible approach to implementing YCC in the future. They will allow the yield on 10-year government bonds to fluctuate beyond the designated target range of -0.5% to +0.5%. According to the BoJ, this range will be used as a "reference" and not as a "rigid boundary."

"Taking into account extremely high uncertainty on the economic and price outlook, it is appropriate to enhance the sustainability of monetary easing under the current framework by conducting yield curve control with greater flexibility and nimbly responding to upside and downside risks," it said.

Some market participants viewed the flexibility in YCC as a sign of a change in the BoJ's policy stance, suddenly causing USD/JPY to plummet hundreds of pips instantly. However, some market players later suspected the YCC easing wasn't as hawkish as they initially thought. As a result, USD/JPY immediately bounced back from 138.06 and moved higher again.

As known, the top officials of the BoJ are renowned for their staunchly dovish stance. They have implemented various measures to ease their monetary policy, including adopting negative interest rates, ignoring yen depreciation, and implementing the controversial YCC. Japan's inflation rate has surged this year, exceeding the central bank's target, but the BoJ remains steadfast in continuing all these policy packages.