The Japanese remained a tad weaker as the Bank of Japan showed no sign of easing policy measures further until the end of the year. The downtrend of the yen was supported by the hiatus caused by the upcoming Fed minutes which pushed the greenback higher. Further, the ailing Japanese economy makes the path of the currency even narrower.
No Stimulus from the BOJ
After trading with a green candle the previous week, the Japanese yen started the week low against the U.S. currency. As the BoJ pushed back inflation target, the currency slipped to a 6-year low. BoJ Governor Haruhiko Kuroda indicated in his recent interview that it may take slightly more months to reach the 2 percent inflation rate and the bank can’t reduce the JGB purchase program soon.
During the Quantitative and Qualitative Monetary Easing (QQE) comprehensive assessment conducted by the bank in September, the results showed that “(1) the Bank's JGB purchases have been effective in lowering long-term interest rates; (2) the impact of a given increase in the Bank's JGB holdings on long-term JGB yields diminished between the start of 2014 and the introduction of the negative interest rate; and (3) the negative interest rate policy has been effective in lowering long-term interest rates.”
If the bank thinks that the negative rates have contributed well enough, then it should not worry about the plunge of the currency. Technically, lower interest rates drive depreciation. However, it seems that the central bank would resist to any change if the Japanese currency remains on moving downward. In any case that the yen change hands higher than the greenback, will the bank impose lower interest rates? In light of the financial and economic pressure, perhaps it will.
The flagging economy of Japan has influenced the monetary decision of the BoJ. Economic and political stability with an attainable inflation target are the primary concerns of the central bank before implementing monetary adjustments. In connection with this, Japan’s parliament announced $32 billion extra budget for the current fiscal year to supplement the economic stimulus package and to boost the infrastructure spending
At 13:47 UTC, USD/JPY was 0.32 percent higher to trade at 103.93. During the late trading session on Monday, the pair settled at 103.594 after opening firmly at 103.711. The greenback was highly supported by the upcoming Fed minutes on Wednesday.
As seen in the image below, USD/JPY was moderately building up in the mid-session. The pair had an intraday high of 103.806 and an intraday low of 103.806 with 10566 traded volumes. From a minor fluctuation at the start of the month, the greenback fully recovered with speculators turning hawkish over the Fed rate hike in December. The upward momentum was an extension of the path it had from the previous week.
Further, the pair goes near to the upper band which means the momentum is not yet fading. There’s a reasonable chance that it could possibly reach the September peak of 104.296. However, the red candles became visible at 15:20 UTC, challenging the uptrend path of the pair. The resistance was found at 104.138 while the support stood at 103.619. With the help of these indicators, investors must pay attention to the path of USD/JPY. Apparently market volatility is palpable with a significant market data on the way and the Japanese yen will stay on the defensive ground.