Yen Rebounds After BoJ Holds Monetary Policy Steady

The Japanese yen erased its early losses against its major opponents during the Asian session on Thursday, after the Bank of Japan kept its monetary policy unchanged and raised the growth projections.

The board voted 7-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

Compared to October outlook, the projected growth rates were somewhat higher, mainly for fiscal 2021, reflecting the effects of the government's economic measures in particular. The projected rates of increase in the CPI were more or less unchanged.

The bank noted that risks to both economic activity and prices were skewed to the downside, mainly due to the impact of Covid-19.

U.S. President Joe Biden was sworn into office on Wednesday.

Hopes that Biden's massive stimulus measures will revive growth triggered a rise in equities.

In economic news, Japan posted a merchandise trade surplus of 751.01 billion yen in December. That was shy of expectations for a surplus of 942.8 billion yen but up from 366.8 billion yen in November.

Exports rose 2.0 percent on year at 6.706 trillion yen, missing forecasts for an increase of 2.4 percent following the 4.2 percent decline in the previous month. Imports sank an annual 11.6 percent to 5.955 trillion yen versus expectations for a decline of 14.0 percent following the 11.1 percent drop a month earlier.

The yen advanced to a 2-week high of 103.33 against the greenback from yesterday's closing value of 103.53. The yen may possibly challenge resistance around the 100.00 level.

The yen recovered to 116.30 against the franc and 125.38 against the euro, from its prior lows of 116.55 and 125.63, respectively. Early in the session, the yen logged more than a 3-week high of 116.21 versus the franc and a 2-day high of 125.26 against the euro. The next possible resistance for the yen is seen around 111.5 against the franc and 122.00 against the euro.

The yen bounced off from a low of 141.73 versus the pound and was trading at 141.43. The yen is seen finding resistance around the 138.00 mark.

The yen rose back to 81.92 against the loonie, from a low of 82.11 seen at 7:45 pm ET. If the yen rises further, 79.5 is likely seen as its next resistance level.

In contrast, the yen remained lower against the kiwi and the aussie, reaching 6-day lows of 74.64 and 80.52, respectively. The yen is likely to challenge support around 76.00 against the kiwi and 82.00 against the aussie.

Looking ahead, the European Central Bank will announce interest rate decision at 7:45 am ET. The ECB is expected to hold its main refi rate at a record low zero percent and the deposit rate at -0.50 percent.

Canada new housing price index for December, U.S. weekly jobless claims for the week ended January 16 and housing starts and building permits for December are due out in the New York session.

Eurozone flash consumer sentiment index for January is set for release at 10:00 am ET.