USDJPY Outlook: Week of 4/7

by on April 8, 2014 5:43 am BST

The Bank of Japan (BoJ) is satisfied with the current economic growth and chooses not to implement additional monetary easing, according to the monetary policy minutes report released early in Asian trade.

Economists look to see some stalling in economic growth as sales taxes are increase to eight percent from five percent this month. BoJ Haruhiko Kuroda aimed to keep the monetary based expanding between ¥60-70 trillion per year. Within the last week, analysts suspected that the central bank would double their purchases in exchange-traded funds (ETFs),

The BoJ indicated that there will be some contraction in the April to June quarter and is expected to ramp up asset purchases in order to offset any slowdown. With current consumer prices steadily increasing, the BoJ will stay on course until the two percent target is reached. According to Yasuhide Yajima, chef economist at NLI Research Institute, said “I expect the BOJ to add expansive policy between May and July,” which fits the general consensus.

However, it will be interesting to see what the BoJ has up their sleeve. They expected a slowdown from the April tax increase, but recent household spending dropped by 2.5 percent as consumer prices pinch wallets shut. Asset purchases may need to go above and beyond what the market currently expects to keep the economy growing.

The USDJPY seen a sharp pullback as risk assets, basically, went nuclear on fears that the US economy is not all it is cracked up to be. As a result, the yen was revisited as a safe-haven. US equities and the Nikkei seen sharp reversals, and the USDJPY was supported at 103. Unfortunately, tonight’s shaky trade has seen the pair drop below 103.

USDJPY will see support at 102.65/68, which represents the 30-day 50 percent retracetment from the recent high. The BoJ press conference will be tentative, but strength in the yen will push the pair lower to 102.40. Conversely, bearish yen sentiment will push the pair higher, but upside potential could be capped due to the weak US dollar going into Wednesday’s FOMC minutes. Resistance can be found at 103.25 and 103.65.

4H Chart of USDJPY

4H Chart of USDJPY