(MENAFN- DailyFX)
USD/JPY ANALYSIS
- BoJ meeting minutes unsurprisingly dovish but poses more questions than answers.
- Is YCC still required?
- Bulls knocking on the 145.00 door.
JAPANESE YEN FUNDAMENTAL BACKDROP
The eked out marginal gains against the greenback today after the meeting minutes and key economic data – see calendar below. Later today we look forward to multiple speakers which should provide some across pairs.
ECONOMIC CALENDAR
Source:
Earlier this morning the BoJ's meeting minutes revealed concern around Japan's rising (now above the 2% target) and a weakening as shown in the figure below. While this is worrying, there was no pressure to hike and/or change the current loose stance but rather pinning hopes on a global to support the Yen and the BoJ's current policies. This includes Yield Curve Control (YCC) which aims to maintain a certain yield for Japanese Government Bonds (JGBs).
JAPANESE INFLATION VS
Source: Refinitiv
The initial purpose for YCC was to promote inflation in Japan (coinciding with Yen weakness) which was has been in a deflationary environment for many years. Now with inflation exceeding their targets, the purchase of bonds and hence the selling of JPY in what is an inflationary setting, serves an exponential weakening of the local currency. Does the BoJ need to change its policy stance or alter the YCC dynamic? I believe this should be the case and considering the fact that Bank of Japan Governor Haruhiko Kuroda is set to leave next April, this possible change needs to be explored further. In short, a continuation of YCC will leave JPY exposed to further downside and vice versa.
TECHNICAL ANALYSIS
/JPY DAILY CHART
Chart prepared by , IG
The daily USD/JPY chart shows the 145.00 resistance level under threat once more after last week's FX intervention. This level is likely to be breached once more in my opinion supported by a key technical pattern. Current daily mimics an that traditionally points to an upside breakout. What makes this situation tricky to call is the fact that a breakout may not lead to additional upside due to FX intervention so it will be interesting to see whether Japan re-enters the FX markets for a second time this year.
Key resistance levels:
Key support levels:
- 20-day (purple)
- 139.98 (76.4% )/50-day EMA (blue)
IG CLIENT SENTIMENT POINTS TO SHORT-TERM UPSIDE
shows retail traders are currently net SHORT on , with 77% of traders currently holding short positions (as of this writing). At DailyFX we take a contrarian view on sentiment, suggestive of a bullish bias.
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