BOJ maintained their monetary policy, with the June Statement showing the exact same wording as the May decision  (see paragraph 2) with regards to their asset purchase plan. Outlook remains bullish with Japan’s economy expected to “return to a moderate recovery path”. It is interesting to note that the wording used was a “path” to recovery which is very different from recovery in itself, suggesting that the economy may be improving, but not necessary expanding but perhaps merely allowing current shrinkage to slow down.
Word play or not, the lack of new stimulus pressure means that there will not be any new reason for speculators to buy into USD/JPY. Price collapsed as we expected, staying just above 98.0, around the post Japan GDP announcement highs. All in all, the reaction from BOJ’s announcement was relatively muted, without any significant breakthrough other than allowing 98.5 interim resistance – broken before the announcement was made – to hold. Overall bearishness continue to be in play, and was also affirmed prior to the BOJ announcement with price hitting the descending trendline that has been in play since the start of June. Currently price is holding by the 98.0 round number with next level of support around 97.5. Should price break 97.5, the bullish breakout from 7th Jun descending Channel will be invalidated which may expose 95.0 and allow price to accelerate lower quickly. Stochastic readings suggest that current bearish cycle (which started from 99.0 decline) is still ongoing, but the close proximity between Stoch levels and the Oversold zone hints that 97.5 maybe harder to break than we think.
Daily chart shows current corrective rally from 95.0 being kept at bay by the same 98.5 discussed above. What is more interesting is that the 3 White Soldiers pattern that would have been highly bullish especially if 98.5 is broken has now been imparied with the last “soldier” being a Spinning Top candlestick, which generally means “indecision” and “uncertainty”. Couple with the inability to close above 98.5, price action is one bearish maribozu away from forming a reversal candlestick pattern, which will be a huge blow for bullish traders hoping for a retest of 100.0. Though Stochastic readings are still pointing higher, the decrease in gradient is obvious, and suggest that a peak may be forming. Looking at historical levels, current levels is close to the 2 interim troughs formed in Feb and in May, which means current stoch levels would need to “breakout” of the stoch “resistance” level in order to re-establish a strong bullish cycle scenario.
Kuroda did hint that BOJ may explore long-term funding operations if needed, but also added a caveat, saying that the need for longer operations will decrease should volatility decreases. However the market is having none of it, with USD/JPY and Nikkei futures trading lower following the press conference post BOJ announcement. At the very least we’ve learned one thing – market wants a new strong policy, and pussyfooting around about possibilities will not cut it in the future.
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