USD/JPY had a very short consolidation period, and quickly moved higher, breaking the 90 line. A highly anticipated rate decision and the accompanying BOJ Press Conference are the main events this week. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.
The BOJ is reluctantly warming up to aggressive monetary steps pressured by the government, and this sent the yen lower. Will the new measures planned by the new Prime Minister Shinzo bail Japan out of recession? The BOJ is expected to move towards a 2% inflation goal, using QE and more steps. In the meantime, economic indicators in the US have been positive.
Updates: All eyes were on the Bank of Japan Policy meeting on Tuesday, and the yen soared following the meeting. The BOJ doubled its inflation target to 2%, and announced open-ended purchases, but only starting in 2014. The BOJ also maintained the benchmark interest rate at <01.0%. All Industries Activity declined by 0.3%, matching the forecast. The Trade Deficit improved to 0.80 trillion yen ,but this fell well short of the estimate of -0.71 trillion yen. The yen has lost ground, and is back above the 89 line. USD/JPY was trading at 89.33.
Tokyo Core CPI and the Bank of Japan Monetary Policy Meeting Minutes will be released later on Thursday.
- Rate decision: Tuesday. Bank of Japan maintained its zero interest rate environment policy and decided to expand its asset purchase and special loan program to ¥101 trillion from ¥91 trillion plus and issued a plan to encourage commercial banks to increase lending. Gov. Masaaki Shirakawa talked positively about the central bank’s policy coordination with the government in helping the country overcome deflation. Other measures such as cutting the lending rate to 0% and/or announcing a negative deposit rate are also considered.
- WEF Annual Meetings: Tue-Thu. The World Economic Forum (WEF) will be held in Davos, Switzerland incorporating international political leaders, business leaders and journalists from across the globe. The forum will discuss global, regional and industrial issues with regards to economics, health and the environment. Japan might be pressured regarding its FX policy.
- Trade Balance: Wednesday, 23:50. November adjusted merchandise trade deficit expanded to Y868.5 billion from Y619.4 billion in October. Exports dropped 0.1% while imports surged 4.3%. On a yearly base, exports were declined 4.7% while imports climbed 0.9%. An smaller deficit of Y710 billion is expected.
- Tokyo Core CPI: Thursday, 23:30. Japan’s National core consumer prices dropped 0.1% in November from a year earlier after a flat reading in the previous month, further evidence to the ongoing deflation which the new prime minister aims to defeat. Meantime core consumer prices in Tokyo, an early indicator for December declined 0.6% from a year earlier, after posting a 0.5% drop in October. National core consumer prices are expected to contract 0.2% while Tokyo core CPI is expected to decline 0.5%/
- Monetary Policy Meeting Minutes: Thursday, 23:50. The new Japanese Prime Minister Shinzo Abe continued to call for the BOJ to drastically ease monetary policy by setting an inflation target of 2%, and weaken the strong yen to help boost the economy. Abe asks the BOJ to use unconventional measures to provide monetary stimulus to tackle deflation. Abe is expected to plan an extra budget by mid-January with markets looking for 10 trillion yen ($117.93 billion) in new spending, part of which would need to be covered by additional borrowing.
*All times are GMT.
USD/JPY Technical Analysis
Dollar/¥ traded in a narrow range and found support at the minor 90.10 line (mentioned last week). It then dropped as low as 87.80 before rising sharply, eventually breaking the 90 line and even closing above it. Will this break be confirmed?
Technical lines from top to bottom
A very important line is 94.70 – which capped the pair for long months in early 2010. 92.12 worked in both direction in 2009 and 2010. These are still in the distance at the moment.
The ultimate resistance line for now is 90 – a target marked by many analysts and a round number. This line very close. Just below, 89.67 capped the pair for several days in January 2013 and is now immediate 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 immediate resistance at the moment.
Below, 87.60 provided support on a pullback when the pair traded higher in January, after previously working as resistance. 86.27, which served as resistance, also in 2010 is weakening now.
85.50 is a high peak seen back in early 2011 and remains important support now. 84.20 is a more recent swing high, seen in early 2012. This is now critical resistance for any move forward.An initial move above this line in December 2012 turned into a false break.
It is followed by 83.34 which capped the pair in April and also beforehand. It switched to support after the surge in December. 82.87 is a veteran line – that’s where the BOJ intervened for the first time back in 2010. The line also capped the pair during November and December 2012.
Another Recent Technical View: USD/JPY Ascends to Resume Bullish Stance after Pullback – by James Chen.
I am bullish on USD/JPY.
Despite some worries about the weakness of the yen, the determination to fight deflation will probably be materialized in the BOJ meeting. Even though the moves were rumored, we will probably not see a “sell the fact” move, but rather more weakness of the yen. The consolidation is probably behind us. In addition, the improving situation in the US certainly supports the pair from the other side.
- 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