Economists at OCBC Bank discuss USD/JPY outlook ahead of Friday’s Bank of Japan meeting.

Still looking for downside play

Support at 138.40/50 levels (recent low, 21 DMA). 

Resistance at 140.20 and 142.50 (61.8% fibo retracement of 2022 high to 2023 low).

Recall at the last BoJ MPC (28 Apr), a policy review was unveiled as expected but the projected timeframe for the review (up to 1-1.5years) was much longer than expected. BoJ Governor Ueda did clarify that policy change is still possible during policy review. We opined BoJ is buying time, and this suggests that JPY bulls may have to be more patient. 

We doubt BoJ will use the full 18 months review duration, but it also appears that the Friday MPC (16th Jun) may be too soon to expect any policy shift. Nevertheless, we are still in favour of BoJ policy normalisation amid broadening inflationary pressures and wage growth seen in Japan.