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The USD/JPY has experienced a fairly volatile Asia session, at one point declining all the way down to 97.78 before finding support and currently consolidating near the 98.30 level. The main catalyst for the sharp drop appeared to come right after the Bank of Japan announced it would not be making any changes to current monetary policy.

Our analysts noted although many had expected the policy to remain unchanged, there were rumors circling of possible adjustments to help control the recent government bond market volatility which may have helped spark the initial declines when market participants saw the adjustments to current policy were not made. "The Bank of Japan monetary policy meeting offered no particular response to the latest episodes of market volatility in JGB, which includes the failure to change maturities of fixed rate operations in order to ease bond market volatility. Also, there had been some rumors about a proposal to extend the loans to 2 years, something that was not accepted, leading to strong selling in both the Nikkei and USD/JPY".

Greg Gibbs, FX Strategist at RBS did not seem too surprised by the recent uptick in volatility over the last few weeks, noting that trading could remain choppy in the short term as the market looks for a new catalyst to help complete further advances. "The first and perhaps easier phase of the USD/JPY rally is now behind us and the outlook now could be a longer period of corrective price action as the market searches for new reasons to drive the USD/JPY and assesses the medium term implications of persistent quantitative easing," noted Gibbs. In discussing his longer term outlook for the pair, Gibbs noted he still expects higher prices by the end of 2013, but the 100 area may help cap advances in the near term.

Our analysts pointed out some intra-day levels to keep an eye on as we head into the European and U.S. sessions. "Initial resistance now sits at 98.50 (previous support on 1 hour chart), followed by 99.11 (the 9 DMA). Initial support sits at 97.83 (the 50 DMA on the 1 hour chart), followed by 97.40 (previous resistance, now support on 1 hour chart)."

From a longer term technical perspective, both short-term moving averages and the RSI (14) remain in a bearish set up on the daily chart. However, thus far the pair has been able to find solid footing after the massive reversal which occurred on June 7th. It would not be all that surprising to see the pair consolidate over the next few days as market participants attempt to figure out which direction the next major move is going to be. In order to turn the current short-term trend from bearish to neutral, the pair would need a close above 99.11 (the 9 DMA). The next goal for the USD/JPY bulls would be to achieve close above the 20 DMA (100.75), which would turn the short term trend bullish.

Source: USD/JPY Searching For Direction After BoJ Meeting