During the October meeting, the Bank of Japan decided not to change the basic parameters of its monetary policy. However, no changes were expected: the regulator is intended to reach its inflation target, which is still pretty far. The key rate remained the same, -0.1%, as well as the volume of the QE program, 80 trillion Yen per year. However, the regulator prefers not to mention the increase of the national debt, as usual.
Something not usual, but expected, is that the inflation expectations got worse. The inflation forecast for fiscal 2017-2018 reduced from the July reading of +1.1% to 0.8% today. The forecast for fiscal 2018-2019 dropped from the previous estimation of +1.5% to 1.4%. Expectations for 2019-2020 haven’t changed, +1.8%.
According to the BoJ estimations, one of the probable risks is a possibility of the price decrease, but it’s not surprising really. In order to “jump” to 2% (the target set by the Bank of Japan), the indicator still requires a strong impulse provided by the country’s economy. All other risks don’t seem to be very serious.
The inflation was and still is the major “troublemaker and headache” for the Japanese regulator. Almost 15 years of deflation were not for nothing: the country’s economy required significant cash injections. However, despite these injections, the population is still very cautious and careful in their consumer behavior. It is happening at the time when the labor market is quite calm, which means that the people do have money to spend, but they are not in a hurry to spend it because they’re not sure that the Japanese economy can really jump to a brand new level of its development.
The Yen responded to the inflation forecasts decline just as expected – it strengthened against the US Dollar. However, this response is probably short-term, because investors will get a lot of new information and reasons for active movements in the next three days.
From the technical point of view, the USD/JPY pair is correcting the previous uptrend. After breaking the support level of the rising channel at 113.70, the price has fallen by the distance, which is equal to the width of the previous movement channel. After rebounding from the support level of the projected channel, the pair is moving towards 113.70 and then – 114.09 to test the area it passed earlier and form a stable short-term resistance area. After the instrument tests the above-mentioned area, it may fall towards the current support area at 113.30. In case this area is broken, the price may continue falling to reach the next target at 112.72 close to the retracement of 61.8%.
Author: Dmitriy Gurkovskiy, Senior Analyst at RoboForex
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.