The Yen reacted sharply to the Bank of Japan Governor, Kuroda’s comments made earlier today to the Japanese Parliament, gaining close to 1% against the Greenback. The Yen rallied after the Governor said that the real effective exchange rate of the Yen was weak and that he finds it hard to see further declines. The BoJ Governor expressed dissatisfaction at the pace of the Yen’s weakening against its counterparts despite the weakness in the currency helping the Central Bank to achieve its inflation target.
The Central Banker also reiterated that the BoJ would achieve its 2% inflation mandate by the first half of the fiscal year 2016 and that the QQE would remain in place until the price stability is achieved. Kuroda ruled out further policy easing for the moment.
The USDJPY which was previously trading above 125.12 last week declined sharply to trade near 122.8 handle, while the CADJPY declined from 100.5 to trade close to 99.8 handle. But the Yen’s reaction was largely muted amongst other currencies namely the Pound Sterling and the Euro.
Comments from BoJ officials are not new, especially when the Yen is seen to weaken at a faster pace. Technically, the current strengthening in the Yen is most likely to attract potential buyers into the market and as such could be most likely a short term correction rather than putting a lid to the rallies.
Fundamentally, the economic data from Japan has been largely positive for the most part, with the first quarter GDP also balancing off for a 1% growth rate. However the fundamentals were clearly ignored in the past few weeks as the Yen surprised the markets by suddenly deteriorating against most of its peers.
Japanese Yen Futures – Technicals
Perhaps the best way to explain the current moves in the Yen from a technical perspective is to look at the Japanese Yen CME futures. The daily chart below shows a break out to the downside after price consolidated to form a descending triangle pattern. The break below 0.82 saw a sharp decline reaching the measured move objective towards 0.7959, pushing the Yen to new lows.
However, the appearance of the harami candlestick near these lows just a few days ago saw an upside breakout. It is very likely that today’s price action in the Yen futures will see a confirmed close above the highs of 0.804, which is likely to fuel gains to retest the broken support of 0.82. This is further confirmed by the RSI divergence which failed to confirm the lows and instead starting to print higher lows.
Once the Yen futures test the 0.82 support, it will be interesting thereafter. If 0.82 fails as resistance, Yen futures could see a further rally higher, above 0.83. However, should the resistance at 0.82 hold, we could expect to see a fresh decline to the previous lows at 0.7959 and perhaps even lower.