USD/JPY Outlook -April 25-29

The rate decision is the key event of the upcoming week for Dollar/yen. Here’s an outlook for the major events that will rock the pair, and an updated technical analysis for USD/JPY, now in lower ground.

Masaaki Shirakawa Governor of the Bank of Japan announced last week that economy will likely contract in the first half of 2011 in light of the halt in production following the March 11 earthquake and tsunami. All efforts are devoted to regaining growth in the summer period. Will these efforts succeed?

USD/JPY daily chart with support and resistance lines marked. Click to enlarge:

1. Retail Sales: Wednesday, 00:50. Japanese retail sales increased 0.1% in February on a yearly base above forecasts of a 0.4% drop.The major earthquake in March may bring Japan into a recession since consumption is a dominant factor of GDP.A decline of 0.6% is expected this time.
2. Household Spending: Thursday, 00:30. Japanese household spending dropped 0.2% in February while analysts predicted a flat rate and following 0.1% drop in the previous month. Consumption is expected to decline further by 0.7% after the earthquake and tsunami.
3. Tokyo Core CPI: Thursday, 00:30. Core consumer prices plunged further 0.3% in February following 0.4% drop in the previous month due to slower rises in commodity prices. This fall was in line with predictions. Economists forecast improvement in core consumer inflation since the government decided to cancel high school tuition and a foreseen inflation due to shortage of supplies. A rise of 0.2% is predicted.
4. Prelim Industrial Production: Thursday, 00:50. Industrial production increased a seasonally adjusted 0.4% rising for the fourth straight month following 1.3% gain in January. However the March 11 earthquake and tsunami seriously impact future production. industrial production is expected to drop 10.3% in March.
5. Rate Decision: Thursday. Bank of Japan maintained cash rate at 0.10% but launched a new loan program for banks in the northeast region hurt the most by the earthquake and tsunami. The caused a sharp decrease in production and power supply badly affecting exports and domestic demand. The BOJ may have been overly optimistic on its future outlook following the earthquake and tsunami.
6. BOJ Outlook Report: Thursday, 7:00. Following the  March 11 earthquake and the  BOJ   downgraded its assessment of the domestic economy and provides Y1 trillion worth of one-year loans at 0.1% to manufacturers with branches in areas affected by the quake.  Despite the grim situation, the BOJ claims the Japanese economy will return to a moderate recovery following the reconstruction period and due to  global economic  improvement.*All times are GMT 

USD/JPY Technical Analysis:

Dollar/yen began the week with a rise, but it eventually dropped, lost the 82 line (mentioned last week) and couldn’t break back above this line.

Looking up, 82 is very close and provides immediate resistance. This line was very distinctive in the past few months, especially around the March 11 catastrophe.  It’s followed by the minor line of 82.87 (BOJ September intervention), that wasn’t too strong just now.

Moving higher, we encounter 83.40, which worked in both directions, and especially as resistance before the earthquake. Just above it, 84 provides further resistance after being a peak earlier in the year.

Above, more serious resistance is at 85.50, which proved to be quite stubborn when the pair was moving higher.  Above, 85.93, which was the peak after the yen intervention in September, is the next, close, line of resistance.

Even higher, there’s a bigger gap until the next line –  87  isn’t only a round number – it was also support back in July 2010.  Higher above, 88.12, which capped the pair back in August and previously worked as support is the next stronghold.

Further up the road we reach 89.10, which worked in both directions before July 2010. The last line for now is the round number of 90

Looking down, there are less lines at the moment. If the pair fails to top 82, it will fall and face support at 80.90, that was a trough several times in the past. November’s lows of 80.40 serve as minor support further down the road.

The previous historic low of 79.75 (from 1995) is still a very strong line. It had a chance to serve also as resistance before the big intervention, provides further support. Below this line, 78.27 is very minor support.

I am neutral on USD/JPY.

While the Japanese economy isn’t doing well, there’s a big risk to the dollar with the US rate decision. Bernanke can send the dollar very low.

Further reading:

• 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.