The Bank of Japan (BoJ) concluded its monetary policy meeting with nothing new to offer. It is maintaining the aggressive pace qualitative and quantitative easing (QQE) in the face of falling inflation. Energy prices have kept prices low, making it hard for the BoJ to achieve its 2.0% annual inflation target.
The recent bout of disinflation due to oil prices is prevalent in other developed countries as well. But But for Japan, disinflation/deflation has been a chronic issue that BoJ chief Haruhiko Kuroda has been tackling with for the past 2 years.
It is still too early to tell whether this disinflation/deflationary mode is temporary (due to oil prices), or part of its long standing problem. When we see inflation in other developed countries start to pick up, then we can compare to see if prices will also start to pick up in Japan. If not, we can expect some plans of suggestions of extension or expansion of the current stimulus program. This will likely happen in the second half of the year.
The JPY should not be able to find any strength based on fundamentals except for some short-term corrections. It is still medium-term, long-term bearish, especially to the USD, because the FOMC is on the opposite charge as the BoJ – it is planning to tighten up monetary policy and raise rates this year. Indeed, in intra-session price action, we are seeing the JPY firm up against the USD.
The 4H chart shows that USD/JPY has been consolidating since hitting a high on the year at 122, which also broke the 2014-high of 121.70. Within this consolidation between roughly 122 and 120.60, the technicals remain bullish. A break above 121.50 should expose the 122 high with risk of pushing beyond.
A break below 120.60 would be needed to put in a price top and signal a short-term bearish correction that can lead to a medium-term consolidation. However, because the prevailing uptrend since 2011/2012 is still in play, we should expect the market to buy on dips if the 4H chart starts to show oversold conditions for example. As far as price, the area around 119.50 is a support/resistance pivot area, and is a very likely support if the RSI is also in oversold territory (at or below 30).
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