Rate decision is the highlight of this week accompanied by BOJ Press Conference and Monthly Policy statement. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
Japan decided to lower the nation’s corporate tax rate next year and introduce incentives for small businesses to increase hiring, an attempt by Prime Minister Naoto Kan to bolster a slowing economy. However wealthy households will be taxed more and fuel taxes will be raised. The panel, headed by Finance Minister Yoshihiko Noda, already announced the policies earlier this month. Will these measures prove successful in the long run?
USD/JPY daily chart with support and resistance lines marked. Click to enlarge:
Let’s start:
- Rate Decision: Tuesday. The Bank of Japan decided by unanimous vote to keep the benchmark rate at 0.0%-0.1% for second consecutive month and established a program to purchase the assets worth 35 trillion yen including risk assets beginning this week. The rate is likely to be maintained this month. Monetary Policy Statement and the BOJ Press Conference should be noted as well for further information on future monetary policy. The same rate of 0.10% is predicted this month.
- All Industries Activity: Tuesday, 4:30. Japan’s All industry activity index fell 0.8% to 96.0 in September after a 0.2% decline in August, showing a second month of decrease in overall production. Analysts predicted a 0.5% drop. A smaller drop of 0.1% is forecasted now.
- Trade Balance: Tuesday, 23:50. The adjusted merchandise trade balance showed a surplus value of 578.5 billion yen the same as in the prior month’s reading where analysts forecasted surplus value of 630 billion yen. The merchandise trade imports dropped on the yearly scale to 8.7, compared with the previous revised 10.0 raising concerns about the Japanese economy. Trade Balance surplus is expected to widen to 630 billion yen.
- BOJ Monthly Report: Wednesday, 5:00. In its last report the BOJ declared that Japan’s economy shows signs of a moderate recovery with pausing intervals. Exports and production have recently been stagnant but they are expected to increase moderately again, reflecting the improvement in overseas economic conditions. Business investments are improving. The employment and income situation remains serious, though with some improvement.
- All times are GMT.
USD/JPY Technical Analysis
The yen was strong at the beginning of the week, as USD/JPY fell to 82.87, a line mentioned in last week’s outlook. It then recovered quickly and challenged the 84.40 line before closing just under 84.
Looking down, 83.40 is the immediate line of support, but not as strong as earlier. Below, 82.87, the lowest level before the intervention is the next line, returning to be a strong line. The low of 82.34, seen earlier in the month, is another minor line on the way down.
Below, the next line of support is 82, the round number that capped the pair during October and November. Below, 80.87 is a weaker line, after providing support at the beginning of October.
Lower, 80.40 is the lowest close the pair ever had, and it’s followed by the lowest intra-day low of all times 79.75.
Looking up, 84.40, proved to be a strong line in recent weeks. Above, 85.93 is the highest level reached after the big intervention in September, and is strong resistance as well.
Higher, the next lines are rather close – 86.35 was a support line in July and later switched to resistance. Right afterwards, 86.88, that worked as support earlier.
More important resistance is found at 88.10, which was a support line in March and later served as resistance. The last resistance line for now is 89.15 which capped the pair quite some time ago.
I remain bullish on USD/JPY.
The gradual rise of US treasuries, together with the weakness of the Japanese economy, boost the pair.
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.
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