BOJ Deputy Governor Nominees Kikuo Iwata and Hiroshi Nakaso gave their testimony in the Parliament confirmation hearing today. Familiar phrases were thrown out, with Iwata affirming his allegiance to Abenomics by stating that Abe’s economic plans are “appropriate”. It seems that both Deputy Governors will be looking at stock prices keenly, saying that higher stocks will lead to higher consumer spending which will help them to reach the 2% inflation target. Whether that statement is true is highly debatable, especially since Japanese have a culture of saving every single penny they’ve got. Regardless, Iwata suggest that BOJ must expand monetary base, while Nakaso gave some bullish virtuoso by proclaiming that Japan must “grab the chance to beat deflation” especially when the economy has stopped worsening. He continued saying that Monetary Policy is “very important” to end deflation, and that the BOJ will consider various policy options, at the same suggesting that the Central Bank trio (Kuroda, Iwata and Nakaso) will be “creative” in their approach.
How creative? Besides injecting more Yen into the market, Iwata wants to see issuance of Inflation Linked Bonds restarted. There is also a cry to Abe to amend BOJ’s laws so that they will have a “freehand to achieve price target” given to them. BOJ is also expected to buy bonds of maturity longer than 5 years.
However, market remains unconvinced. Instead of weakening, JPY actually strengthened, pushing price lower. Price broke away from the rising trendline while entering the Kumo at the same time. Price has also broken away from the consolidation zone support for the past 1.5 trading days around 93.25. Stochastic is also looking to head lower with readings forming an interim top after a Stoch/Signal cross.
Daily Chart is still relatively bullish, with 92.50 support still in play. Price can find nearer support in the form of Kijuu-Sen (Red Line), while Stochastic readings suggest that price may still yet find bullish resolve to push higher.
All in all, we can see that USD/JPY is still going up strong, though the bearish reaction towards the BOJ nominees is of huge concern on the longevity of current uptrend. Price has been consolidating since early Feb and there isn’t a true bullish attempt to break higher since, with 94.5 acting as a very strong resistance. Fundamentally, we need BOJ to announce new measures to push prices higher, however based on early signs, it certainly doesn’t look that market will react the way BOJ wants. However, BOJ may find friends with bullish sentiments from the US. DOW has just posted the highest closing price since 2009, and we could potentially see price pushing higher if the bullish breakout in stocks is confirm, weakening Yen due to safe haven flows exiting. Though US could easily turn from friend to foe if GOP and Dem fail to reach any amicable solutions to resolve the eventual cuts that will kick into action within the next few months. Expect continued volatility in USD/JPY ahead.
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