BOJ kept its policy rate at close to zero, while maintaining current stimulus package. This is not surprising, as Kuroda himself has said that they were down for now just a month ago. What is surprising however, is the fact that none of the BOJ members voted to increase easing this time round. If speculators did not believe Kuroda, they will be forced to accept that BOJ is truly done with their stimulus project for this quarter, and maybe even for the end of the year. This decision was made in spite of the fact that Japanese deflation was actually worse off than before, rather than improving. March’s National Consumer Price Index (Y/Y) came in at -0.9%, lower than the expected -0.8% and worse than previous month’s -0.7%.
It seems that market was already prepared for such an eventuality, with prices staying mute and not rallying after the CPI data was released. Or perhaps, market may be focusing more on the fact that Tokyo’s own CPI showed improvement in deflation pressure, coming in at -0.7% vs -0.8% expected, and higher than previous month’s -1.0%. Whatever the case may be, price is certainly not looking bullish, with bears managing to break the rising trendline with the subsequent pullback unable to break back in to the previous consolidation and unable to sustain above the rising trendline. Price is currently staying above the 98.5 support, similar to the consolidation area on 23rd April.
Yesterday we mentioned that USD/JPY was primed for breakout, and from the daily chart it seems that bears are edging bulls right now. However, price should ideally trade below 97.25 (the valley of the M shape) for us to see potential acceleration towards 96.8, the last level bears need to clear for the double top formation to be confirmed. Stochastic readings is hinting of a bear cycle but is only inching lower slowly. Ideally, a break of 96.8 should also coincide with a break of the readings interim support around 69 for a full bearish scenario to emerge. This would help to heap more pressure on 96.8 and may encourage bears to push harder.
Fundamentally, with BOJ affirming that they want to have no more stimulus, it is hard to imagine USD/JPY re-testing 100.0. Nonetheless, do not expect USD/JPY speculators to simply give up their dream of the century mark. Without risk aversion in the market, there isn’t any strong reason for them to sell (as price has decoupled from Japan fundamentals long ago). However, if risk aversion sentiment is strong, traders will be more willing to buy JPY now considering that the threat of more BOJ action is minimal, which will drive USD/JPY lower and potentially scaring current long position holders to clear their longs in order to preserve their hard earned profits.
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