USD/JPY had a roller coaster week, trading in a range of 400 pips. After the G-20 meetings, will the pair break above 100 this time? Tokyo inflation data and the rate decision are the major events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
The G-20 meetings said they will be “mindful” of side effects of monetary policy. This is a very slight slap on the wrist for Japan. Fears of international pressure boosted the yen, but this changed during the week. Bank of Japan Governor Haruhiko Kuroda said last week Japan’s financial system is stabilizing and markets are improving due to a reduction in risk aversion and rising optimism concerning the new domestic policy. Kuroda repeated his statement about achieving the 2% inflation target in two years or even sooner, suggesting an ongoing improvement in some economic indicators. Will Kuroda live up to his expectations? Time would tell.
Updates: The G20 meeting ended without criticizing Japan’s monetary policies. The Japanese government has taken this as a green light to continue taking easing measures. CSPI will be released later on Tuesday ,with the forecast standing at 0.4%. After getting close to the 100 level, USD/JPY has retracted. The pair was trading at 98.72.
- Manufacturing PMI: Friday, 0:15. In Japan, the manufacturing PMI crossed the 50 point line in March reaching a seasonally adjusted 50.4, from 48.5 in February, indicating expansion for the first time in 10 months. New export orders increased for the first time in a year to 53.9, and the output sub-index also climbed for the first time in 10 months to 51.3 in March.
- Inflation data: Friday, 0:30. Japan’s core consumer prices declined 0.3% in February from a year earlier, stressing the need of more stimulus measures from the part of the BOJ. New BOJ Governor Haruhiko Kuroda aims to achieve the central bank’s 2% inflation target in two years, and the weakening of the yen would be felt in about six months. Meanwhile, the early March data for the Tokyo area, showed a further decline of 0.5% in core prices. Nevertheless, analysts believe that declines are expected to slow in the coming months. Both Tokyo Core CPI and the National Core CPI are expected to decline 0.4%.
- Rate decision: Friday. The Bank of Japan started an ambitious endeavor to end deflation and boost Japan’s economic activity. The aggressive monetary policy includes buying massive amounts of government bond holdings valued at about 7 trillion yen, and pursue quantitative easing as long as it needed to achieve its 2% inflation target. No change in rates is expected.
- BOJ Outlook Report: Friday, 7:00. The last Outlook report released in October noted that The Government and the Bank of Japan will fight deflation as early as possible and to return to a sustainable growth. The Bank will continue with this powerful easing until it judges the 1% goal to be in sight.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/¥ began the week with a dive and found support down at around the 95.88 line (mentioned last week). It then rebounded and continued advancing after stabilizing above 97.80. The finish was strong, closing at 98.60.
- 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 and this is marked as the next target.
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 and was reached in April 2013. The pair didn’t manage to break this line yet.
The March 2013 peak of 96.71 is the next line, which now switches to support. 95.88 provided a temporary stop and now serves as minor support.
The round number of 95 is also watched by many and will remain critical support on a reversal. 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.
Another recent technical view: EUR/JPY Continues Recovery Targeting Higher Highs – by James Chen
I am bullish on USD/JPY
With the G-20 behind us, the long term advance of the pair can be resumed. A challenge of the 100 line could be successful now. Money is slowly beginning to flow out of Japan, and this move can push the yen lower. Despite some weakness in the US, Kuroda seems to have the upper hand on Bernanke.
- 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