09:14, 26 April

Steadies Below Key 112 Level as BOJ Loses Optimism

In the last few days the USDJPY has eased lower back below the key 112 level moving to a two week low. It has for the last couple of weeks met resistance at the 112 level and failed to make any ground above this level despite several attempts. A couple of days ago it moved to its highest level this year at 112.40 before being sold off strongly forcing it lower to the two week low. 

For the best part of the last three months it has traded within a well established range between 110 and 112 receiving support and resistance from those levels respectively.

The 112 level remains very significant as it provided support to the currency pair in the last few months of 2018 whilst offering resistance in the period since. Throughout this year the USDJPY has done well to rally higher from a significant drop at the start of the year which saw it plummet to below 103, where it has steadily climbed higher to the 112 level.

Throughout most of December 2018, the USDJPY fell sharply from another well established range between 112 and 114, culminating in the sharp drop to start this year. Throughout that range, the USDJPY displayed a number of reversal candlesticks at the resistance level at 114 indicating how strong that level was. The 114 level remains some distance away but is likely to play a role again should the USDJPY return there.

Last month the Bank of Japan (BOJ) offered a bleaker picture of the economy and left its ultra-easy monetary policy on hold, but Governor Haruhiko Kuroda cautioned against undue pessimism.  Japan's central bank has said that Japan's exports and production have shown some weakness, which is a distinct downgrade from its January assessment that they were on an increasing trend.  Whilst it remains some distance away from the central bank’s ambitious 2% inflation target, Japan’s core inflation increased slightly in March from a year earlier, which will only place more pressure on the BOJ.  One of the main factors is that wages are not rising that much which is hindering any economic momentum for Japan.  Last year it seemed the central bank was concerned about earnings from banks and it became a tad passive as a result.  The BOJ is expected to fine tune its policy if other economic indicators get worse.  Unfortunately for Japan’s central bank, its current subdued inflation has left it trailing behind other central banks in winding back stimulus measures.  Some economists suggest that the BOJ has little ammunition left to fight another serious economic downturn.