This week our currency strategists focused on the Bank of Japan (BOJ) Monetary Policy Statement for potential high-quality setups.
Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become a potential candidate for a trade & risk management overlay.
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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Check out our review on that discussion to see what happened!
NZD/JPY: Wednesday – May 1, 2025
NZD/JPY 1-Hour Forex Chart by TradingView
On Wednesday, our strategists had their sights set on the Bank of Japan monetary policy statement and its potential impact on the Japanese yen.
Based on our Event Guide, expectations were for the BOJ to keep its policy rate unchanged at 0.50%, with markets looking for signals on future policy direction and updated economic forecasts. With those expectations in mind, here’s what we were thinking:
The “Yen Bulls Rise” Scenario:
If the BOJ delivered a less dovish tone or showed increased concern about excessive FX volatility, we anticipated this could support the yen.
We focused on CHF/JPY for potential short strategies if broad risk sentiment leaned adverse, especially given the SNB’s continued wariness of safe-haven demand for the franc and readiness for currency intervention. In a risk-off environment, NZD/JPY short made sense given the pair’s recent downward momentum after breaking through its channel bottom.
The “Yen Bears Charge” Scenario:
If the BOJ maintained its dovish stance or downgraded economic projections due to global trade uncertainties, we thought this could weigh on the Japanese currency.
We eyed GBP/JPY for potential long strategies in a risk-on environment, particularly given the pair’s historical volatility during BOJ events. If risk sentiment was net positive, NZD/JPY long made sense given the recent channel support bounce and New Zealand’s strong trade data and improved credit card spending.
What Actually Happened
The BOJ kept its benchmark interest rate unchanged at 0.50% as widely expected in a unanimous decision while making several dovish adjustments to their outlook:
- Revised growth forecasts downward, citing concerns about global trade tensions
- Pushed back the timeline for achieving its 2% inflation target to fiscal 2027
- Projected inflation to remain around 1.9% through fiscal 2026
Most importantly, Governor Ueda struck a decidedly dovish tone in his press conference, emphasizing that “the Bank will continue to support the economy by maintaining accommodative financial conditions” while acknowledging the risks from U.S. tariffs and potential global economic slowdown. He showed little concern about the weakening yen, focusing instead on supporting economic growth amid external uncertainties.
Market Reaction
This outcome fundamentally triggered our JPY bearish scenarios and, with risk sentiment leaning positive after recent improvements in U.S.-China trade relations, NZD/JPY became our pair to watch.
Looking at the NZD/JPY chart, the pair already bounced off S1 near the channel support prior to the BOJ announcement. When the dovish policy statement hit the wires, we saw increased buying interest that accelerated during Ueda’s press conference.
The pair climbed steadily through the 85.50 level and SMAs, breaking above the pivot point (85.25) as well. By the European session, NZD/JPY had tested the previous week highs and inched close to R1 (86.49), drawing in more bulls as the broader risk-on sentiment supported commodity currencies.
The pair held on to most of its gains through the end of the week, supported by broad-based yen weakness and positive trade data from New Zealand, but retreated before hitting the 86.50 minor psychological resistance near R1.
The Verdict
So, how’d we do?
Our fundamental analysis correctly anticipated JPY weakness on a dovish BOJ stance, which played out exactly as expected with the downgraded growth forecasts and extended inflation target timeline. Our technical analysis accurately identified the key inflection points at the Pivot Point and projected targets near R1 and the channel resistance.
Traders who entered long positions at the channel bottom ahead of the actual BOJ event could have captured a substantial move higher of over 150 pips to the previous week highs. A more prudent entry on a break above the moving averages or pivot point after the announcement could have still caught close to a hundred pips.
Risk management would have been relatively straightforward given the sustained upward momentum, with a stop below S1 still offering a good return-on-risk.
Overall, we think this discussion was “likely” supportive of a net positive outcome as both fundamental and technical triggers aligned nicely, spurring strong bullish NZD/JPY momentum but coming slightly short of our target resistance area.
The pair maintained most of its gains at the weekly close, confirming the validity of our analysis and trading approach, but trade management would have proved crucial in terms of locking in profits and aiming for positive expectancy.
