BoJ Stays on Course as GDP Falls, Intraday USDJPY Technicals

by on February 18, 2014 4:11 pm BST

The Bank of Japan (BoJ) continued on the course of huge quantitative easing and extended specialized loan programs in hopes to spur economic growth and reach the BoJ’s two percent inflation target. The problem is that Japan’s growth is waning. Gross domestic product came in at .3 percent, less than the .7 percent expected by economists. Furthermore, gross domestic product has fallen every quarter since the surprising beat last May.

The yen dramatically fell after the BoJ conference and monetary policy minutes release, boosting the USDJPY over 100 pips from the session lows. The Nikkei index, which has seen better days recently, jumped 3.1 percent. The BoJ Haruhiko Kuroda said the expansion was to encourage banks to lend instead of hoarding all their capital, similar to the United States and euro zone.

A primary concern, as asset purchases get bigger, is the risks that could arise. Japanese consumer prices have increased dramatically in less than a year’s time, and it is not known whether the BoJ can control a breakout. Kuroda does not give market participants much on how or when the central bank will begin to wind down after particular targets are hit. “If risks materialize, we will not hesitate adjusting policy, but for now Japan’s economy is on track and moving in line with our forecasts,” said Kuroda.

The USDJPY rallied up to the key resistance level of 102.65, and then began to pullback to 102.25/30. The 200 EMA on the 4H chart aided in the resistance strength, but the 72 EMA at 102.20 is acting as current support. The pair is likely to begin to consolidate into tomorrow’s FOMC minutes.

A break above resistance would pave the way for 102.93. 103 may act as a psychological, round-number resistance level. Intraday support is seen at 102.1 and 102, while daily support levels posted (here) are still valid.

4H Chart of USDJPY

4H Chart of USDJPY