Yen firm as BoJ maintains stimulus program

The Bank of Japan, in its press conference reiterated its commitment to maintain its stimulus program with an aim of increasing the monetary base by 80 trillion Yen annually, while posting an upward revision to exports and production as the economy barely managed to step out of recession.

The BoJ’s view was fairly optimistic despite the disappointment in its GDP numbers. Growth in the country rose 2.2% annually during the previous quarter, below its expectations of a 3.7% growth rate.

In regards to the votes, the BoJ voted 8 to 1 to leave the bank’s policies unchanged. The Central Bank however warned that consumption was weaker on account of the sale tax hike seen last year April.

The BoJ embarked on its massive monetary policy easing in a bid to lift inflation to its 2% target and this weakening its currency which is also aimed at helping exporters, in an economy that is largely dependent on exports. The Central bank however did not comment on the weakness in the labor markets as wages continue to remain stagnant. The bank however noted that recovery in some private sectors was sluggish.

The latest monetary policy statement is a bit confusing considering that it was only last week that the Bank of Japan came out to surprise the markets noting that any further expansion to its monetary policy would be counter-productive towards inflation. The conflicting views make it seemingly impossible to estimate when the BoJ could likely expand its monetary stimulus program, considering that the most recent expansion was in October 2014. The USDJPY managed to rally as much as 11% since the announcement rising from 107.

USDJPY Technical analysis

USDJPY continues to remain within the uptrend but we notice price has lost its bullish moment after it started a consolidation phase December last year. USDJPY has been stuck trading within the range of 121.48 and 116.38 levels ever since. With price action trading close to the rising trend line, a break of the trend line could potentially see another decline down to 116.38 levels.

Within the consolidation pattern, we get the upside target of 124.5 while a breakdown from the rectangle consolidation could see a downside target to 113.257, which sits just a bit above 112.315, an unfilled gap.

Fundamentally, the markets are poised towards a possible US rate hike sometime in June this year. While economic data has been relatively mixed and possibly tipped to the downside, the labor market has managed to consistently beat estimates in what seems like a stellar growth seen in years. This view alone is likely to raise speculation for a June rate hike.

Janet Yellen, head of the Federal Reserve will be testifying before congress towards the last week of February (24^th and 25^th) and the markets are likely to be tuned in for any clues from the Fed Chief. Considering that the FOMC released a hawkish statement in February (ahead of the January Jobs report), the testimony from Yellen could reflect this new data and tip the scales for an optimistic view of the US economy.