USD/JPY: outlook for September 26-30
The Bank of Japan did announce something new: it shifted from targeting base money to targeting 10-year government bond yield in order to limit the negative impact on profitability of commercial banks. At the same time, the regulator didn’t increase the size of its monetary stimulus program. That’s why after the initial decline Japanese yen strengthened and USD/JPY went down. The fact that the Federal Reserve signaled a slower path of interest rates hikes in the coming years also deprived the pair from bullish drivers.
USD/JPY made a move towards the key psychological level of 100.00, but managed to stay above this point. Market players will continue discussing the BOJ policy. The thought that the regulator will have to ease monetary policy to achieve its inflation goal may provide some support for the pair. Never the less, the bears may continue trying to test 100.00 mark. A break below this point could open the way for a significant selloff. Japanese monetary authorities are aware of this risk. According to the nation’s top currency diplomat, Tokyo is watching for speculative currency market moves and would respond if needed. If USD/JPY slips below 100.00, there will be at least verbal interventions from Japanese officials aiming to lift the pair. As for resistance, it lies at 101.20 and then at 102.50 (2016 resistance line, 50-day MA). The latter looks like a strong obstacle.
Next week the Bank of Japan’s Governor Kuroda will speak on Thursday. Also watch the release on Japanese inflation figures on Friday. The last time national core CPI contracted by 0.5%.