USD/JPY had another week of consolidation as tension is rising towards the first rate decision of the new leadership of the BOJ. Will Kuroda meet the huge expectations? Apart from the rate decision, the Tankan index is also very important. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week, Bank of Japan Gov. Haruhiko Kuroda continued his rhetoric on deflation at the Diet committee in Tokyo, aiming to achieve the 2% inflation target and end the lingering deflation. He also told about his intention to get a full five-year term as the BOJ governor. Will Kuroda succeed in his ambitious endeavors? In the US, not all economic figures continued shining, as jobless claims rose and new home sales disappointed, but the economy continues growing nicely.
Updates: Tankan Index readings started the new trading week on a disappointing note. The Tankan Manufacturing Index rose from -12 to -8 points, missing the estimate of -7 points. In similar fashion, the Tankan Non-Manufacturing Index climbed from 4 to 6 points, but fell below the estimate of 8 points. Monetary Base came in at 19.8%, well above the estimate of 16.3%. Average Cash Earnings posted a second straight decline of -0.7%. The forecast stood at -0.1%. The yen continues to improve, as USD/JPY was trading at 92.88. The BOJ made big decisions and USD/JPY leaped 250 pips. The new governor Kuruoda announced Fed style qualitative easing, with extended QE. The markets were caught by surprise by the BOJ’s aggressive steps, as there had been speculation that Kuroda would not make any significant moves until later in the month. USD/JPY was trading at 95.44.
- Tankan Index: Sunday, 23:50. Japanese business climate continued to worsen in the fourth quarter, reaching minus 12 from minus 3 in the third quarter. The central bank forecasted a slow improvement in 2013. Meanwhile Service-sector sentiment declined to 4 from plus 8 in the third quarter, in line with market predictions. Tankan Manufacturing index is expected to improve to -7, while the Service sector is expected to remain at 8.
- Monetary Base: Monday, 23:50. Total quantity of domestic currency in circulation climbed 15.0% on year in February, following a 10.9% rise in January. Current account balances soared 51.2% on year, following 31.2% rise in January. Another climb of 16.3% is expected this time.
- Average Cash Earnings: Tuesday, 1:30. Japanese salaries rose 0.7% in January from a year earlier, posting the first increase in nine months. The gain followed a revised 1.7% decline in December. Prime Minister Shinzo Abe urged employers to raise salaries to boost consumer spending and increase economic activity. However most of the major firms are reluctant to cooperate until a real increase in domestic demand is shown. A small decline of 0.1% is expected.
- Rate decision: Thursday. The Bank of Japan maintained its monetary policy and declined a proposal to increase monetary stimulus. The new leaders who will take charge are expected to act more aggressively in the coming April meeting and may bring forward open-ended government debt purchases planned for next year. Expectations for more aggressive monetary easing are very high, but Kuroda may take a two step approach and might disappoint at first. Here is why.
- BOJ Monthly Report: Friday, 5:00. In its last monthly report, the Bank of Japan said that industrial production is expected to advance moderately in the April-June quarter after being flat in January-March. Production is expected to pick up as well, exports are predicted to start expanding, in accordance with overseas economies gradual recovery, and consumer sentiment is also expected to rise. In light of these positive assessments, the BOJ also projects that Japan’s economy will stop weakening and get back on the recovery track.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/¥ started the week with a downfall from the all-important 95 level (mentioned last week) before crashing. The pair continued trading above 93.84 and eventually below 94.40 as the volume slowed down. It closed at 94.18.
- Technical lines from top to bottom
Looking above 100, we find the 101.44 line, which was the post crisis high seen in April 2009. The obvious number below is the very round number of 100.
98.90 capped the pair in June 2009 and serves as minor resistance. A stronger line is the 97.80 line, which was a peak back in 2009. The new 2013 peak of 96.71 is the next line.
95.88 now serves as a pivotal line within the new high range. The round number of 95 was breached, but quickly returned to work as resistance.
The previous February 2013 peak of 94.40 should be noted. A second move towards that line in February fell short, but the pair made it in March.
93.84 was an initial peak for the pair as it climbed higher and has served as a cap afterwards. 92.95 was an earlier resistance line, and later served as support.
92.12 was a peak in the past, and provides some support, as seen in February 2013. The line is weaker now. 91.20, which capped the pair very temporarily on its way up in January 2013, is a support line and is now stronger.
The ultimate support line for now is 90 – a target marked by many analysts and a round number. This line remains close after the break. Just below, 89.67 capped the pair for several days in January 2013 and is now minor support.
Below, 89.10 was a peak in the summer of 2010, before the pair began descending and is now support. 88.40 is the peak of January 2013 and is a strong support line.
Another recent technical view: USD/JPY Hits New Long-Term High for Potential Uptrend Continuation – by James Chen
I turn from neutral to bearish on USD/JPY
While the general direction of USD/JPY continues to be the topside, the huge expectations from Kuroda could result in a disappointment, if he only enlarges the QE program. He could take a two-step approach due to political reasons, and later proceed with bringing forward the open ended QE idea laid out by Shirakawa.
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to 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 USD/CAD (loonie), check out the Canadian dollar forecast