10:30, 09 May

Looks for Support at 110 as BOJ Considers Further Easing

In the last couple of weeks the USDJPY has fallen lower and returned to one of the current key levels of 110. For a week or so, the USDJPY met resistance at the 112 level and failed to make any ground above this level despite several attempts. It pushed up to its highest level this year at 112.40 before being sold off and returning to 110.
For the last three months it has traded within the well established range between 110 and 112 receiving support and resistance from those levels respectively and the market will be watching closely to see if the currency pair makes a clear break one direction or the other.

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, from 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.

In March 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. However minutes from its March meeting show that another BOJ official urged the need to continue the central bank’s powerful monetary easing policy.  These comments were in the context of many other central banks, including the U.S. Federal Reserve, having changed their stances to the importance of monetary easing measures versus the growing concerns over a global economic slowdown.  The BOJ official had it noted that it is important for the central bank to “explicitly convey to the market” that it is “not different from other central banks in terms of the direction of monetary policy by presenting its determination that it would persistently continue with the powerful monetary easing.”  The minutes showed that the BOJ board remain divided on how quickly to increase stimulus, even as slowing global demand may impact the outlook for the export-reliant economy.  One member was quoted as saying, “Considering the difficulty in shifting inflation expectations, it was important to respond pre-emptively in the event of a change in economic and price developments.”