Dollar/yen had a very exciting week, sliding lower only to break to new multi-year highs as the BOJ introduced an all out plan. Current Account, Monetary Policy Meeting Minutes and Tertiary Industry Activity are the main events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Last week, The Bank of Japan under new Governor Haruhiko Kuroda, lived up to its expectations delivering a comprehensive monetary easing program, to end years of deflation, vowing to double its government bond holdings in two years and pursue quantitative easing as long as it needed to achieve its 2 percent inflation target. In addition the BOJ wishes to introduce open-ended asset purchases to buy 7 trillion yen in long-term JGBs a month. Markets welcomed the radical change in the BOJ policy, raising Japanese shares and lowering the yen. Will Kuroda’s changes prove successful? The yen remained weak despite a very disappointing jobs report in the US. A price of 100 for USD/JPY is not that far. Let’s Start:
Updates: Japanese Current Account dropped from 0.46 trillion yen to 0.00 trillion. It was the first time since November 2012 that the country failed to produce a current account surplus. Economy Watchers Sentiment came in at 57.3 points, beating the estimate of 56.3. Preliminary Machine Tool Orders continues to plunge, dropping 21.6%. The BOJ released its Monetary Policy Meeting Minutes. At its previous meeting last week, the BOJ decided to radically alter monetary policy and double the monetary base. Following the policy meeting, the yen dropped sharply. Bank Lending will be released later on Tuesday. USD/JPY is testing the 99 line. The pair was trading at 98.95. Bank Lending gained 1.6%. Core Machinery Orders bounced back from a sharp decline of 13.1%, climbing 7.5%. This easily beat the estimate of 6.9%. CGPI continues to point to deflation, as the indicator dropped 0.5%. The estimate stood at 0.4%. M2 Money Stock rose 3.0%, edging past the estimate of 2.9%. USD/JPY has edged lower, as the pair was trading at 98.42.
USD/JPY daily chart with support and resistance lines on it. Click to enlarge:
- Current Account: Monday, 0:50. Japan registered a better than expected surplus in January, reaching 360 million from 110 million in the previous month. The reading was much better than the 110 million anticipated by analysts. A rise in surplus to 460 million is expected now.
- Economy Watchers Sentiment: Monday, 6:00. Japan’s service sector sentiment improved to 53.2 in February from 49.5 in January, rising for the fourth straight month, due to growing hopes that the new government’s aggressive monetary and fiscal steps will boost the economy. The Cabinet Office said in its assessment that the economy was picking up. A further improvement to 56.3 is expected this time.
- Monetary Policy Meeting Minutes: Tuesday, 0:50. Expectations are high for the coming Bank of Japan’s monetary policy announcement under its new governor, Haruhiko Kuroda. The Bank of Japan has long been criticized for its relatively conservative monetary policies and is now highly pressured to stimulate growth and the same goes for BOJ new Governor Haruhiko Kuroda of whom markets expect bold and unprecedented actions to boost Japan’s economy.
- Core Machinery Orders: Thursday, 0:50. Japan’s core machinery orders slid 13.1% in January from a 2.8% gain in the previous month. The fall in core orders, excluding ships and power utilities, was much bigger than a median market forecast of 1.6% decline. Compared with a year earlier, core orders, declined 9.7% in January. A rise of 6.9% is forecasted.
- Tertiary Industry Activity: Friday, 0:50. January tertiary index plunged 1.1%, down 0.2% on the year and following 1.1% increase in December, amid wholesales & retail trade slump of 3.5%, as well as a 6.6% drop in scientific research, professional & technical services. A gain of 0.8% is anticipated this time.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/ ¥ began the week with a slide, and was capped by the 93.84 line (mentioned last week) and dropped under 93 before Thursday. It all dramatically changed on the historic BOJ decision: the pair jumped 300 pips higher, and then continued more gradually another 200 pips to touch the all important 97.80 and eventually close at 97.52.
- 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.
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.
Another recent technical view: EUR/JPY Continues Recovery Targeting Higher Highs – by James Chen
I am bullish on USD/JPY
The general direction of USD/JPY continues to be the topside, and this will probably continue at an accelerated pace now. after the all important decision. The pace that the BOJ expands its monetary base are significantly wider than those of the US, when compared to the GDP. In addition, the psychological impact of this huge step and the bond buys will probably cause some outflows out of Japan, that will strengthen other currencies against the yen. Kuroda didn’t wait for the reappointment (which eventually happened after the decision) and gave all he had in the first meeting.
The impact of this move was already seen on the backdrop of a poor NFP report: the yen stopped and strengthened for a very short period of time before resuming the fall.
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 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
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