Reviewing BoJ Decision & JPY Reaction

Jan 31, 4:10 pm
Yen

The Decision

The Bank of Japan decided to keep the current policy unchanged as widely expected, leaving the policy rate at -0.1% and the assets purchases at 80 Trillion Yen annually. Moreover, the BoJ maintained its 10 Year JGB target around 0.0% (currently at 0.09%).

Outlook Upgrade

Despite the recent slowing down in inflation and GDP. The Bank of Japan managed to upgrade GDP estimates for the next two years, despite the fact that the GDP has slowed for the second quarter in a row and Core inflation is back to Zero

Indicator

Latest Estimates

Previous

GDP 2016/2017

1.4%

1.0%

GDP 2018/2019

1.1%

0.9%

Core Inflation 2016/2017

-0.2%

-0.1%

Core Inflation  2018/2019

1.7%

1.7%

Despite the fact that the Bank of Japan did downgrade its inflation forecast for this year to -0.2%, it kept the core inflation for next year at 1.7%, which means that the Bank of Japan is aware that inflation might accelerate anytime this year.

BoJ Quarterly Report

  • Japan economy likely to expand moderately ahead
  • Risks to economy, prices tilted to downside
  • Momentum to achieve 2% price goal maintained but lacks strength
  • BOJ QQE with yield curve control until needed to stably achieve 2% inflation
  • BOJ will make policy adjustments as appropriate looking at economy, prices, financial conditions
  • Inflation expectations remain on weak note

What Matters For The Yen?

Traders need to be very careful and cautious in the coming days, especially after today’s decision. The Bank of Japan is becoming more sanguine on its outlook for the economy, but no change to its forecast for inflation except in the near term, where the estimates are on the downside.

The Japanese Yen advanced almost across the board during today’s session. However, this might not continue for a long time, since the bank short term inflation estimates are on the downside.

However, traders are also advised to be cautious regarding the US Dollar Index, which is consolidating for the past few days, just above the 100.0 support barrier. A weaker yen is highly possible, but USD index needs to crack that support to give us the green light to act. Otherwise, I would stand aside for few days.

BoJ & Central Banks

You might be asking why am I so cautious about the central banks these days. The answer is that the ECB is very close to start tapering its QE programme, despite the fact that the global economy is still slowing down and sluggish.

When the Federal Reserve ended the tapering process, someone had to replace the Fed’s gap, which was filled through China, Japan and Europe. In the meantime, with the ECB is looking to taper, while the global economic growth is still sluggish, who will replace the ECB? No one knows for now, but with Japan is still suffering from Deflation, while the Yen is still far away from the BoJ normal average, BoJ might be the one to fill that gap, by introducing new stimulus measures, with a possibility to be joined by the PBoC.

Levels To Watch

Symbol S3 S2 S1 Pivot R1 R2 R3
USDJPY 111.39 112.41 113.10 114.12 114.81 115.83 116.52
EURJPY 119.07 120.21 120.94 122.08 122.81 123.95 124.68
AUDJPY 84.14 84.89 85.43 86.18 86.72 87.47 88.01
GBPJPY 137.80 139.69 140.88 142.77 143.96 145.85 147.04
CHFJPY 112.37 113.12 113.73 114.48 115.09 115.84 116.45
CADJPY 85.28 85.90 86.32 86.94 87.36 87.98 88.40
NZDJPY 81.35 81.99 82.44 83.08 83.53 84.17 84.62

 
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.