After BOJ meeting, the interest rate outlook is still boosting USDJPY

Walid Salah Eldin

Active member
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As expected BOJ decided today to keep its forward guidance unchanged promising to hold the interest rate at the current extremely low level for an extended period of time.
BOJ's members voted 7 to 2 to keep the interest rate at -0.1% as it has since Jan. 29, 2016 and voted 8 to 1 to keep its JGBs annual pace of buying at nearly ¥80tr as it has since the end of October 2014 maintaining its 10yr JGB yield target as it has since Sep. 21, 2016 at Zero per cent.

BOJ has taken these measurements targeting price stability around 2% yearly by adopting ultra unprecedented easing policy and it is still persisting on it for fighting deflation forces and stimulating growth.
However it has revised down today its forecast for Core CPI for 2018-2019 financial to 0.9% from 1.1% it has expected earlier in the previous released quarterly report last July.
It lowered also its forecast for 2019-2020 to 1.4% from 1.5% it expected last July and for 2020-2021 to 1.5% from 1.6% it expected in July. It looked that it does not see a close end of this ultra easing policy.
BOJ lowered also its GDP forecast for 2018-2019 to 1.4%, after it was expecting 1.5% in July, but for 2019-2020 and also for 2020-2021, it expected expansion by 0.8% as it was expecting last July.

BOJ's broad members 2 days meeting outcome was widely expected and could not make a considerable immediate change of USDJPY.
But it could later continue its creeping up to be trading currently close to 113.30, boosted by the interest rate outlook differential between USD and JPY which has been undermined by the end of US session by equities rebounding, as a low cost financing currency.
The Japanese yen weakness could make Nikkei 225 exporters much more attractive sending it closer to 21.850, after dipping yesterday to 21081.93.
While the US stocks indexes future rates are still referring to ability of holding of what they could gain by the end of yesterday session.

All of the other Asian equities markets are still pointing to recovery, after green opening following US closing, despite the weaker than expected release of Oct China NBS manufacturing PMI which has shown retreating to 50.2, while the consensus was referring to decreasing to 50.6 from 50.8 in September.
Oct China non-manufacturing PMI has shown also falling to 53.9 from 54.9 in September to be the weakest since August 2017.
But USDCNY continued strength could restore the investors' confidence in loading risks, as it has been set today by PBOC at 6.9646 to be at its highest level since May 2008, after forming a high low by the end of last August at 6.8000.

The equities markets eyes are still foreseen to be on the US equities and their future rates waiting for the release of Apple quarterly earnings report later Thursday and eyeing on the release of Oct US labor report by the end of the week, wishing for data can detain the Fed from hiking rates further by the end of this year.

While strong hiring and higher inflationary wage pressure from The US labor market can give the Forex market excuse to send the greenback higher, After Hurricane Florence could undermine Sep non-farm payrolls to figure adding only 134k.

USDJPY is now at a higher place above its daily SMA50 and its daily SMA100 and also its daily SMA100, after it could form a higher low at 111.37 by the end of last week, while its continued existence above its daily SMA200 is still underpinning it over longer range.
USDJPY is now trading in its second day of being above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading 111.41, after forming this bottom at 111.37 last Friday which enabled it to contain all of last week slide.
USDJPY daily RSI-14 is still referring to higher existence inside its neutral territory reading 57.775.
USDJPY daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside its overbought region above 80 at 88.779 leading to the upside its signal line which is still lower inside the neutral area at 69.068, following higher positive crossover inside this area to refer to this convergence to the upside.

Important levels: Daily SMA50 @ 112.27, Daily SMA100 @ 111.64 and Daily SMA200 @ 109.86
Experienced S&R:
S1: 111.37
S2: 110.37
S3: 109.77
R1: 114.54
R2: 114.73
R3: 115.50

Have a good day and nice trading times

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din


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