BOJ Monthly Report and the G20 meeting are the highlight of this week in Japan. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
USD/JPY daily chart with support and resistance lines marked. Click to enlarge:
Last week’s the BOJ policy board voted unanimously to keep the overnight call rate between zero and 0.1 percent and maintain the sizes of its 5 trillion-yen fund and a 30 trillion yen-program to encourage bank lending. The BOJ has decided to avoid reacting to the Federal Reserve’s decision to pour $600 billion into the market since the move didn’t lead to a yen surge. However in case the currency’s rise will continue and threaten, Governor Masaaki Shirakawa will be forced to take further monetary easing measures. Will the BOJ choose to intervene again?
- BOJ Monthly Report: Monday, 6:00. In its previous economic report The BOJ stated that recovery is slowing as exports decline in the face of global anxiety and the strong JPY. This gloomy report came after the BOJ’s intervention in the markets on September 15 when it sold 2.12 trillion yen to weaken its currency. For now, Japan declared taking further monetary easing measures following the Federal Reserve’s new economic stimulus since it was ensured from a dollar sell-off and a sharp yen spike.
- Bank Lending: Tuesday, 0:50. Bank lending fell 1.8 percent from a year earlier in September, marking the 10th straight month of declines mainly due to weak corporate fund demand. Nevertheless, the central bank’s latest economic report predicts conditions will improve.
- Household Confidence: Wednesday, 06:00. Household Confidence index dropped from 42.4 to 41.2 during the previous month. Japan’s household confidence plunged for the third consecutive month to the lowest level since March staying below the 50 point line indicating pessimism. A further decline to 40.9 is expected now.
- Core Machinery Orders: Thursday, 0:50. Japan’s private-sector machinery orders, a leading indicator of production rose 10.1 per cent in August. The increase in core orders, which exclude particularly volatile demand from power companies and for ships, marked the third straight monthly rise boosted Japanese shares in early trading.
However, Japan is still faced with a strong currency. A 9.2% drop is expected now.
- G20 Meetings: Thursday and Friday Following the previous G20 meeting agreement to avoid a currency war and after Japan extended the time horizon and permissiveness on new unilateral interventions to devalue the Yen, Japanese finance minister Yoshihiko Noda was quoted by reporters on November 6, saying “The common foundation is being built for countries to address external imbalances, whether they be current account surplus or deficit, as well as stability of the global currency system …” It will be interesting to watch the affect of these meetings on the troubled global economy.
* All times GMT
USD/JPY Technical Analysis
At the beginning of the week, USD/JPY fell to a fresh 15 year low of 80.23, but it then recovered, and fell short of 82 (mentioned in last week’s outlook). At 81.25, it closed the week, almost 100 pips higher.
USD/JPY is now supported by 80.40, which was the lowest level twice in the previous week, and also the all-time daily close. Below, the intraday all-time low of 79.75 is the ultimate support line.
Looking up, 82 was the peak in the past week ans also served as resistance earlier in October. Higher, 82.87 was the line were the BOJ intervened to push the pair higher. It now serves as resistance. 84.11 is the next significant line, providing temporary support for the pair on its way down.
85.93 was a stubborn peak that USD/JPY reached after the intervention. 86.35 was a support line in July and later switched to resistance. It’s closely followed by 86.88, that worked as support earlier. The last line for now is 88.10, which was a support line in March and later worked as resistance.
I remain bullish on USD/JPY.
Even without an intervention and while other currencies rose against the greenback, the Japanese yen finally retreated. Did it mark a bottom?
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro/Dollar forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar.
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