USD/JPY: BOJ raised its growth forecasts, as expected
Macroeconomic overview
As widely expected, the BOJ maintained a pledge to guide short-term interest rates at minus 0.1% and the 10-year government bond yield to around zero.
In a quarterly review of its forecasts, the BOJ raised its growth estimates for the fiscal year beginning in April to 1.5% from 1.3% forecast in November, nodding to brightening prospects for exports.
It also hiked its forecast for fiscal 2018 to 1.1% from 0.9%.
But the central bank left unchanged its already optimistic inflation forecasts for the coming years even as external factors push up prices, such as a rebound in oil prices and rising import bills from a weak yen. The BOJ said it expects inflation to hit its 2% target by around March 2019.
"The momentum for achieving our 2% inflation target is maintained, but lacks strength," the BOJ said in the quarterly forecast report, warning that global uncertainties could make companies cautious of hiking prices and wages.
Japan's core consumer prices marked the 10th straight month of annual declines in December despite more than three years of aggressive money printing by the BOJ, underscoring the country's sticky deflationary mindset.
Japan's growth remained anaemic in the first half of last year as consumption slumped. But a pick-up in global demand has helped exports recover, giving rise to market bets the BOJ's next move may be to hike - not cut - rates. The recovery prospects and sharp rise in global yields on hopes of Trump's reflationist policies have encouraged talk among some investors of a rate hike by the BOJ as early as this year. Speculation that the BOJ could taper its asset purchases earlier than expected heightened also after the BOJ skipped a much anticipated auction to buy short-term debt last week.
Japan’s industrial output rose 0.5% in December from the previous month, preliminary government data showed on Tuesday. The result compared with a median market forecast of a 0.3% increase.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 3.0% in January and increase 0.8% in February.
Separate data on Tuesday showed household spending fell 0.3% in December year on year, marking the 10th straight month of declines but beating the 0.6% decrease projected by the market. Household spending dropped 1.5% in November.
Japan's jobless rate was steady at 3.1% in December and the jobs-applicants ratio rose to 1.43 from 1.41 the previous month.
Technical analysis
The USD/JPY has been fluctuating between 112.43 (50% fibo of 2015-2016 fall) and 115.60 (61.8% fibo). However, the momentum remains slightly bearish as 14-day exponential moving average remains negatively aligned. The failure on Friday ahead of the kijun line at 115.56 increased odds for another test of January low at 112.54. Breaking below that level will open the way to 111.96 (38.2% fibo of November-December rise).
Trading strategy
We stay short for 112.00 in the short term. Our bearish view is supported by fundamental factors (raised BOJ forecasts) and technical analysis. Long-term outlook is also bearish.
GrowthAces.com - Daily Forex Trading Strategies
Macroeconomic overview
As widely expected, the BOJ maintained a pledge to guide short-term interest rates at minus 0.1% and the 10-year government bond yield to around zero.
In a quarterly review of its forecasts, the BOJ raised its growth estimates for the fiscal year beginning in April to 1.5% from 1.3% forecast in November, nodding to brightening prospects for exports.
It also hiked its forecast for fiscal 2018 to 1.1% from 0.9%.
But the central bank left unchanged its already optimistic inflation forecasts for the coming years even as external factors push up prices, such as a rebound in oil prices and rising import bills from a weak yen. The BOJ said it expects inflation to hit its 2% target by around March 2019.
"The momentum for achieving our 2% inflation target is maintained, but lacks strength," the BOJ said in the quarterly forecast report, warning that global uncertainties could make companies cautious of hiking prices and wages.
Japan's core consumer prices marked the 10th straight month of annual declines in December despite more than three years of aggressive money printing by the BOJ, underscoring the country's sticky deflationary mindset.
Japan's growth remained anaemic in the first half of last year as consumption slumped. But a pick-up in global demand has helped exports recover, giving rise to market bets the BOJ's next move may be to hike - not cut - rates. The recovery prospects and sharp rise in global yields on hopes of Trump's reflationist policies have encouraged talk among some investors of a rate hike by the BOJ as early as this year. Speculation that the BOJ could taper its asset purchases earlier than expected heightened also after the BOJ skipped a much anticipated auction to buy short-term debt last week.
Japan’s industrial output rose 0.5% in December from the previous month, preliminary government data showed on Tuesday. The result compared with a median market forecast of a 0.3% increase.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 3.0% in January and increase 0.8% in February.
Separate data on Tuesday showed household spending fell 0.3% in December year on year, marking the 10th straight month of declines but beating the 0.6% decrease projected by the market. Household spending dropped 1.5% in November.
Japan's jobless rate was steady at 3.1% in December and the jobs-applicants ratio rose to 1.43 from 1.41 the previous month.
Technical analysis
The USD/JPY has been fluctuating between 112.43 (50% fibo of 2015-2016 fall) and 115.60 (61.8% fibo). However, the momentum remains slightly bearish as 14-day exponential moving average remains negatively aligned. The failure on Friday ahead of the kijun line at 115.56 increased odds for another test of January low at 112.54. Breaking below that level will open the way to 111.96 (38.2% fibo of November-December rise).
Trading strategy
We stay short for 112.00 in the short term. Our bearish view is supported by fundamental factors (raised BOJ forecasts) and technical analysis. Long-term outlook is also bearish.
GrowthAces.com - Daily Forex Trading Strategies