Bank of Japan on Hold; USD/JPY as We Suggested

Bank of Japan left its interest rates unchanged as it was broadly expected and upgraded its economic outlook. The interest rates remained at -0.1%, since the rate cut last January, the quantitative and qualitative easing (QQE) unchanged at JPY 80 trillion the year, while the inflation forecasts also remained on hold. The central bank will continue to purchase government bonds to keep the yields of 10-year JGB’s near zero. Policymakers are also voted unanimously to extend the deadlines for applications of its lending programs by one year.

The forecasts of the central bank included a lift of the economic growth to 1.5% for 2017 instead of 1.1% forecasted earlier while for 2018, they predicted a pick up to 1.3% from 0.9% before. The bank expects inflation to pick up closer to 2% in the medium to long term period, and left the forecasts published in October unchanged at 1.5% in 2017 and 1.7% in 2018.

USD/JPY Met Our Suggested Target (Technical Analysis)
The greenback traded lower against the Japanese yen over Monday’s session and early on Tuesday and reached our suggested target at 114.00 strong psychological level (see the analysis here: Bank of Japan Policy Meeting Tonight & USD/JPY Forecasts). The USD/JPY pair plummeted almost 3% in January and halted a three-month rally to the upside. The price is developing within a trading range the last three weeks with upper band the 115.40 resistance level and lower band the 112.50 support barrier. After the rebound on the 115.40 obstacle the pair slipped lower and met the 113.20 price level. However, now is trading higher slightly below the 114.00 critical level and the 50-SMA on the 4-hour chart. If there is a break above the latter level, the price will hit the 100-SMA on the short-term timeframe or moreover will retest the upper boundary of the trading range.

On the other hand, a bounce off 114.00 will drive the pair back to 113.00. Technical indicators seem to be in contrast as the RSI indicator is pointing to the upside and is approaching the 50 level while MACD oscillator is moving south below the zero line.


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