USD/JPY Outlook – October 25-29

The rate decision is the highlight of a very busy week in Japan. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

USD/JPY daily chart with support and resistance lines marked. Click to enlarge:

The Japanese yen enjoyed the return of risk aversion in the past week, and dropped even lower. Will it reach all time lows, or will another yen intervention occur? Let’s start:

Trade Balance: Sunday, 23:50. Japan continues to enjoy a surplus in its trade balance, despite the strength of the yen. This surplus is expected to squeeze from 590 billion to 500 billion yen this time. A drop to a deficit will be a shocker.
Retail Sales: Wednesday, 23:50. Sales have shown steady annual rises in recent months, with 4.3% last month. A drop to 3.3% is expected now in this important consumer gauge, released just before the rate decision.
Rate decision: Thursday morning. The last rate decision was surprising, as the BOJ unexpectedly reduced the already low 0.1% rate to a maximum of 0.1%. They can’t go lower. The focus in this decision will not be on the rates but rather on the additional steps taken to stimulate the economy, in the form of quantitative easing, which will also have an impact on the yen. Will they break ranks with the G-20 decision and intervene following the decision? Anyway, the wording of the statement and the press conference will rock the yen.
BOJ Outlook Report: Thursday, 6:00. Complementing the rate decision, this outlook by the central bank will shed some light on the economy, on the situation of exporters and perhaps on deflation.
Tokyo Core CPI: Thursday, 23:30. Speaking of deflation, this early inflation figure from the capital is improving every month – from an annual drop of 2%, it already reached 1%, and is now expected to go 0.8%. Japanese policymakers are longing for a rise in prices. This will still take time.
Unemployment Rate: Thursday, 23:30. While being a late release in Japan, it still has an impact on the currency. The 5.1% unemployment rate is likely to remain unchanged now. Only a really big rise will shake the markets.
Household Spending: Thursday, 23:30. This second consumer indicator is a good gauge of the general mood. A surprise was recorded last time, as household spending rose by an annual rate of 1.7%. A slowdown is expected now, with a rise of only 0.8%.
Industrial Production: Thursday, 23:50. This last release in a bunch of important releases comes 20 minutes later, and will have the stage to itself. Industrial output disappointed last time by dropping by 0.5% instead of rising. Another drop of the same scale is expected now. This is the initial release, and it will be revised later on.

USD/JPY Technical Analysis

A rise at the beginning of the week stopped at the 81.92 line (a new line that didn’t appear last week), but the USD/JPY continued south and went as low as 80.84 before closing at 81.36, almost at the same level as last week.

80.84 is the fresh 15 year low, and serves as support. Below, the historic lows await the Japanese yen, and could trigger an intervention.

Looking up, the past week’s peak of 81.92 provides immediate resistance. It’s followed by 82.36, which capped the pair earlier this month. Above, 82.87 was the line where the BOJ intervened. It now serves as a strong line of resistance.

Higher, 84.11 is a minor resistance line, after working as such a few weeks ago. 84.72 follows – it provided support in August and also way back in 2009. The next significant line is 85.93, the peak that USD/JPY touched after the intervention.

I remain bullish on USD/JPY.

The small recovery of the US dollar translated into stability in USD/JPY in the past week. Following the G-20 meetings, Japan reiterated to “act as needed” to boost its economy, continuing the forex war. If there isn’t an intervention, a strengthening dollar could send the pair higher this week.

USD/JPY Outlook – October 25-29

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