USD/JPY: BOJ seen standing on hold
USD/JPY: BOJ seen standing on hold
Macroeconomic overview
The Bank of Japan is expected to keep monetary policy steady on Thursday and stress that inflation is nowhere near levels that justify talk of withdrawing massive stimulus, as weak consumer spending casts a cloud over an otherwise healthy pick-up in the economy.
Many BOJ officials say they are more confident about prospects of economic recovery as exports and factory output benefit from improving global demand.
But they see more to fret about on consumer prices, as budding growth in some sectors is not generating inflation.
In a sign that companies remain wary of raising the prices of their goods due to weak consumer spending, prices apart from fuel and food have shown scant signs of life.
At the two-day rate review that ends on Thursday, the BOJ is expected to maintain its short-term interest rate target at minus 0.1% and a pledge to guide the 10-year government bond yield around zero percent via aggressive asset purchases.
The market also expects the BOJ to keep intact a loose pledge to maintain the pace of its annual increase in Japanese government bond (JGBs), which is JPY 80 trillion.
At his post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely to stress that the central bank has no plan to raise its yield targets any time soon with inflation distant from its 2% target.
Core consumer prices rose for the first time in over a year in January and we expect inflation to accelerate toward 1% later this year, due largely to a rebound in energy costs and rising import prices from a weak yen.
We think that the BOJ's next move would be to pull back from its ultra-easy policy. The BOJ may be forced to raise its yield targets to avoid ramping up bond purchases if Japanese long-term interest rates track global bond yield rises, which are being driven by expectations of higher U.S. interest rates. But for now the BOJ may want to dispel such speculation and stress it will not raise its yield targets unless the economy strengthens enough to accelerate inflation stably toward 2%.
Technical analysis
Tenkan and kijun lines are positively aligned, reinforcing the overall bullish bias. On the other hand, long upper wicks on Friday’s and Tuesday’s candlestick weigh on the market. The attention today is focused on Fed dot plot and technical analysis will play a minor role.
Trading strategy
We stay USD/JPY short. The USD/JPY is likely to drop after today’s Fed decision, especially if the rate path for 2018 and 2019 is left unchanged, in terms of the median dot path. What is more, USD/JPY may have trouble above the 115.00 level, with Japanese exporters still seeking to sell above it ahead of the end of the Japanese fiscal year this month.
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Macroeconomic overview
The Bank of Japan is expected to keep monetary policy steady on Thursday and stress that inflation is nowhere near levels that justify talk of withdrawing massive stimulus, as weak consumer spending casts a cloud over an otherwise healthy pick-up in the economy.
Many BOJ officials say they are more confident about prospects of economic recovery as exports and factory output benefit from improving global demand.
But they see more to fret about on consumer prices, as budding growth in some sectors is not generating inflation.
In a sign that companies remain wary of raising the prices of their goods due to weak consumer spending, prices apart from fuel and food have shown scant signs of life.
At the two-day rate review that ends on Thursday, the BOJ is expected to maintain its short-term interest rate target at minus 0.1% and a pledge to guide the 10-year government bond yield around zero percent via aggressive asset purchases.
The market also expects the BOJ to keep intact a loose pledge to maintain the pace of its annual increase in Japanese government bond (JGBs), which is JPY 80 trillion.
At his post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely to stress that the central bank has no plan to raise its yield targets any time soon with inflation distant from its 2% target.
Core consumer prices rose for the first time in over a year in January and we expect inflation to accelerate toward 1% later this year, due largely to a rebound in energy costs and rising import prices from a weak yen.
We think that the BOJ's next move would be to pull back from its ultra-easy policy. The BOJ may be forced to raise its yield targets to avoid ramping up bond purchases if Japanese long-term interest rates track global bond yield rises, which are being driven by expectations of higher U.S. interest rates. But for now the BOJ may want to dispel such speculation and stress it will not raise its yield targets unless the economy strengthens enough to accelerate inflation stably toward 2%.
Technical analysis
Tenkan and kijun lines are positively aligned, reinforcing the overall bullish bias. On the other hand, long upper wicks on Friday’s and Tuesday’s candlestick weigh on the market. The attention today is focused on Fed dot plot and technical analysis will play a minor role.
Trading strategy
We stay USD/JPY short. The USD/JPY is likely to drop after today’s Fed decision, especially if the rate path for 2018 and 2019 is left unchanged, in terms of the median dot path. What is more, USD/JPY may have trouble above the 115.00 level, with Japanese exporters still seeking to sell above it ahead of the end of the Japanese fiscal year this month.
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