USD/JPY extends post-BOJ recovery further beyond 112.00 handle

The USD/JPY pair extended its recovery move from sub-112.00 level and has now jumped to fresh session tops, recovering over 40-pips from lows touched ahead of the BOJ announcement. 

The pair caught some fresh bids near important moving averages (50, 100 & 200-day SMAs) confluence support around the 111.75 region and benefitted from the Bank of Japan's decision to maintain status quo. 

The central bank also pushed back the timing for achieving its 2% inflation target, reinforcing expectations that it is unlikely to change its accommodative stance and trim massive stimulus program anytime soon. The dovish policy statement added to lower-than-expected Japanese trade surplus data and was seen weighing on the domestic currency.

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Adding to this, a modest US Dollar recovery, and the prevalent risk-on environment further collaborated to the pair's up-move to session tops near 112.15-20 region.

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The up-move, however, lacked any strong follow through buying interest as investors now look forward to the post meeting BOJ press conference, which could trigger a fresh bout of volatility around JPY crosses. 

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes: "The previous two daily candles carry long lower shadows… suggesting dip demand. This, coupled with a bullish price RSI divergence suggests the spot is likely to cut through the falling channel hurdle of 112.14 and test 112.50-112.60 levels."

"However, the US-Japan 10-year yield spread is stagnant at 2.19. Furthermore, the 5-DMA is still sloping downwards. Thus, fresh offers could come-in around 112.50 levels. On the downside, only a daily close below 112.78 (200-DMA) would open doors for a sell-off to 110.93 levels" he added.