Currency Analyst since 2010

USD/JPY: outlook for July 25-31

USD/JPY made an attempt to take out 107.50, but failed to break higher and returned to the 106.00 area. The advance of the pair since the beginning of July was caused by speculation the Bank of Japan would directly finance Japanese government debt – a policy known as “helicopter money”. This week selloff was triggered by the release of the interview given by the Bank of Japan’s Governor Kuroda to BBC Radio, in which he said that Japan doesn’t need to and won’t do such thing.

Yet, note that after the retracement to the downside the pair stayed above the key support levels at 105.00 and 103.50. The reason of such resilience is that traders think that even if the BOJ doesn’t use such unconventional tool as “helicopter money”, it will expand its current monetary stimulus measures at its meeting on Friday, July 29. As Kuroda said, “there are no significant limitations to further monetary easing”.

The Bank of Japan has reasons to act, because Japanese economic statistics remains week and consumer prices keep contracting. Fresh inflation figures from Japan will be also released on Friday. Yet, with USD/JPY far above 100.00, the Bank of Japan can allow itself not to be very aggressive. For now, the general downtrend is still in place – see the declining daily MAs. A fix above 200-week MA at 106.70 is needed to give the bulls more power. Fundamentally the figures out of the United States will also have an impact on USD/JPY next week as they may change the expectations for the US Federal Reserve’s rates. If the pair manages to overcome resistance at 107.50, next stops will be at 108.25 and 109.60.     

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