- USD/JPY holds lower grounds near intraday low following the BOJ status quo.
- BOJ matches wide market forecast for inaction, revises down inflation and GDP forecasts.
- Market’s indecision ahead of the US GDP, ECB restricts moves amid cautious optimism.
USD/JPY tests the intraday low surrounding 113.50 during the second consecutive daily fall on early Thursday. In doing so, the yen pair pays a little heed to the Bank of Japan’s (BOJ) widely anticipated moves.
The BOJ once again proved the market right by holding the benchmark rate unchanged at around -0.10% with the 10-year Japanese Government Bond (JGB) yield target near 0%. In addition to the rate settings and bond targets, the BOJ also announced a downward revisiting to the quarterly economic forecasts for 2021-22. In its latest prediction, the BOJ expects core CPI to print 0.0% figures versus 0.6% forecast in July while the FY 2021-22 real GDP consensus arrives at +3.4% compared to +3.8% previous expectations.
Read: BOJ downgrades FY 2021/22 growth and inflation outlooks
It should be noted that the virus-led moves have already been expected and the same could keep the carry better the US Federal Reserve (Fed) and the BOJ, which in turn may favor the JPY demand. Also, the risk-safety allure of the Japanese currency gains momentum in times when the leading central banks are up for dialing back the easy money policies.
That being said, risk appetite dwindles amid firmer US Treasury yields and mildly bid stock futures. The US 10-year Treasury yields recover the heaviest daily fall since mid-August, recently picking up bids to 1.55%, up 2.2 basis points (bps), as market players expect further tightening of the monetary policies by the key global central banks. The market consensus could be linked to the firmer inflation expectations and recently firmer data from the developed economies, as well as receding fears of the coronavirus.
Backing the moves are the latest updates from Canada, the UK and Australia that should have favored the US Treasury yields to consolidate the previous day’s heavy fall. The Bank of Canada (BOC) announced the end of bond purchases and the UK also cuts bond issuance. Further, Australia’s strong prints of the RBA Trimmed Mean CPI also push the Reserve Bank of Australia (RBA) towards a rate hike.
Other than the central bank chatters, cautious mood ahead of the US Q3 GDP and European Central Bank (ECB) meeting joins the fresh US-China tussles over telecom and Taiwan issues to weigh on the USD/JPY prices. It should be noted that the early Asian releases of Japanese Retail Sales for August were firmer and added strength to the JPY.
Looking forward, the pair traders will pay attention to the speech from BOJ Governor Haruhiko Kuroda for fresh impulse ahead of the key US GDP. Also important will be chatters surroudning the US stimulus package and budget deal as Democrats eye an agreement on Thursday.
Technical analysis
USD/JPY remains in a bullish consolidation mode between 113.20 and 114.45 irrespective of the bearish MACD signals. However, a downside break of the monthly support can entertain short-term sellers.
