Yen Weak as BoJ Leaves Monetary Policy Unchanged

Yen Weak as BoJ Leaves Monetary Policy Unchanged
January 25, 2018

 
The US dollar began the week on a dull note, as the impasse on the US government shutdown continued. Even the impressive decline in the US unemployment claims, reported last week, was of little assistance to the greenback. The greenback hit a low of 109.0 yesterday, against the Yen. However, in the days to come, we are expecting a strong recovery in the USDJPY pair due to reasons given below.

After intense negotiations, a majority of Democrats voted in favour of a short-term spending bill on Monday, ending a 69-hour shutdown of the US government. The US President Donald Trump signed the bill, soon after it was approved by the House. The bill, which was passed successfully with 81 votes, received support from 33 Democrats. Senate Majority Leader Mitch McConnell had assured Democrats that the US government would consider the plight of about 700,000 people who had come to US as children and are staying illegally. Soon after Trump signed the bill, White House press secretary Sarah Sanders announced that the government will run as usual in a day. The successful passage of the bill has allowed hundreds of thousands of federal workers to return to job on Tuesday. Being a short-term spending bill, it will provide only a temporary respite to the government. However, the end of the US shutdown has turned the sentiment towards the greenback bullish.

The Bank of Japan, in the meanwhile, concluded its two day monetary policy meeting on Tuesday. As anticipated, the central bank maintained the interest rates steady at -0.1% and 10-year yield target at 0%. The decision to keep the rates unchanged was made following an 8-1 vote. Notably, the Bank of Japan said that it has no intention to wind down or trim the quantitative easing program and qualitative yield curve control, until the inflation target of 2% is achieved.

Furthermore, the central bank said it expects consumer prices to increase by 1.4% in fiscal 2018 and 1.8% in 2019. That is in line with the previous forecast. The Bank of Japan expects inflation to reach 2% by fiscal 2019. The BoJ’s governor Haruhiko Kuroda said the economy is not strong enough for the central bank to consider the option of tightening the monetary policy. Thus, economic and political developments support the strengthening of the US dollar against the yen in the days ahead.

Technically, the USDJPY pair is trading near a major support level of 108.80 as shown in the chart below. Furthermore, the RSI indicator is in the oversold region. Therefore, we expect the greenback to begin a rally against the yen.

USDJPY - Technical Analysis - 25th January 2018

To benefit from the impending rally, we wish to go long in the USDJPY pair near 109.0, with a stop loss order below 108. We would sell our long position when the pair trades near 113.0.

Using the platform provided by one of our reliable binary brokers, we may also acquire a call option. We require two conditions to be satisfied for investing in a call option. Firstly, the USDJPY pair should trade at about 109.0 in the spot Forex market. Secondly, the option should remain active until February 2nd.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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