EUR/JPY trims losses after BOJ decision, yield differential favors bears

• Yen suffered minor losses on downward revision of inflation forecasts and calls for more easing
• Yield differential favors EUR/JPY bears

A minor bout of Yen selling post-BOJ decision helped EUR/JPY trim losses, although the relief could be short lived as the 10Y German-Japan yield differential continues to narrow in favor of the bears.

At the present time, the currency pair is trading at 131.70. It clocked a low of 131.55 earlier today.

The Japanese Yen sheds a few pips as the BOJ took note of the weak inflation expectation and the board member, Kataoka called for more easing if there is a delay in hitting the price target.

BOJ's persistent dovish stance only ends up strengthening the Yen's appeal as the favored carry currency. However, the reaction has been lackluster this time around. It could be due to the fact that the 10-year yield differential fell to 29.7 basis points; the lowest level since Oct. 17.

Yield differential

The spread narrow sharply in EUR-negative manner if the Sept. 7 low of 0.285 is breached.

EUR/JPY Technical Levels

A break above 131.89 (session high) would expose 132.03 (50-DMA), above which a major hurdle is seen directly at 132.51 (5-DMA). On the downside, breach of support at 131.45 (previous day's low) could yield a sell-off to 131.00 (zero levels) and 130.60 (Sep. 15 low).