09:42, 31 May

Daily analysis

In the last few days the USDJPY has found some support around 109 and pushed back up towards the key level of 110. In the last few weeks it has generally traded back and forth between 109 and 110.50 and looks content to consolidate for a little while.  In the few weeks prior, the USDJPY fell lower from another key level of 112 after the currency pair met resistance there for a couple of weeks and was unable to push through.
It was able to push up to its highest level this year at 112.40 before being sold off and returning to the support at 109. For the last three months it has generally traded within the well established range between 110 and 112 receiving support and resistance from those levels respectively so it now interesting and perhaps telling that it has been able to clearly break through the 110 level.

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.

On Thursday, Bank of Japan (BOJ) official Makoto Sakurai warned against “recklessly” increasing stimulus just to bolster asset prices, blaming soft inflation on structural factors that were positive for the economy.  Mr Sakurai said the BOJ’s attempt to hit its 2% target has been adversely impacted by companies’ efforts to boost productivity, as they cope with labor shortages by investing in automation rather than raising wages.  “Improvements in productivity aren’t necessarily bad for the economy. As such, it’s undesirable to expand stimulus further just to deal with weak price growth,” Sakurai said.  “We shouldn’t recklessly seek to achieve our price target with additional easing because doing so could accumulate imbalances in the economy,” he said in a meeting with business leaders.  After the meeting, Mr Sakurai said the BOJ may consider taking steps to mitigate the demerits of prolonged easing, if doing so becomes necessary in the future.However, he also stressed that more data was needed to help decide the next move for the central bank.  “If necessary, the BOJ will consider taking action that could involve steps beyond the existing policy framework. It could be something within the framework. In any case, that’s something we’ll consider when the time comes,” Sakurai said.