Previewing BoJ Decision & JPY Trends

Dec 19, 6:01 pm
Yen_JPY Trends

The first day of the week came in with very few economic releases across the board, leading to some sort of tight range in most of the global asset classes. From now on until the end of the year, traders need to know that volatility will start to decline gradually ahead of the holiday season. Therefore, don’t be surprised if central banks decisions show only a slight impact on the markets. In today’s article, we will discuss the possible scenarios for the upcoming Bank of Japan decision.

Why This Event Is Important?

BoJ Policy Rate: Interest rate levied on excess current account balances held at the BOJ. Short-term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.

Monetary Policy Statement: It's among the primary tools the BOJ uses to communicate with investors about monetary policy. It contains the outcome of their decision on asset purchases and commentary about the economic conditions that influenced their decision. Most importantly, it projects the economic outlook and offers clues on the outcome of future votes. The source does not give an exact release time - the event will be listed as 'Tentative' until the statement is issued. Source first released in Jul 2008. Source changed release frequency from about 14 times per year to eight times per year as of Jan 2016.

Press Conference: It's among the primary methods the BOJ uses to communicate with investors regarding monetary policy. It covers the factors that affected the most recent interest rate decision, the overall economic outlook, inflation, and clues regarding future monetary policy.

Any Difference?

Many argue that the Bank of Japan kept the policy unchanged for a long time, will this decision make any difference. The short answer is no, but it is still possible. Why? Because the Bank of Japan had to intervene in the markets last week to push the 10 Year bond yield back to 0.04% down from 0.08. However, the yield bounced back again after the Federal Reserve decision as if nothing happened.

One of the scenarios of today’s decision would be another intervention to pressure the bond yield. How? The BoJ might be forced to increase its bond purchases again, whether through direct JGP purchases or by increasing the ETF’s purchases program.

JPY Trends

USDJPY orbex

The Japanese Yen declined for the 6th consecutive weeks, one we have not seen since 2014. USDJPY spiked all the way up above 117.0, breaking above its 50% and 61.8% Fibonacci retracement on the long term view. Such break above those levels cleared the way for further gains all the way to today’s levels. However, USDJPY is pretty close from another solid resistance area around 119.40’s which represents its 76.4%, Fibonacci, as well, which would be the pair’s last resort. Otherwise, the long-term view is likely to change again from bearish to bullish, with a possibility to test 120 and above.

Levels To Watch

SymbolS3S2S1PivotR1R2R3
USDJPY117.44117.58117.69117.83117.94118.08118.19
EURJPY122.72122.86122.97123.11123.22123.36123.47
GBPJPY146.70146.87147.00147.17147.30147.47147.60
CHFJPY114.33114.50114.62114.79114.91115.08115.20
NZDJPY81.6981.8381.9282.0682.1582.2982.38
CADJPY88.0388.1588.2388.3588.4388.5588.63
 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.