Japan maintains accommodative policy

The yen fell on Friday as the Bank of Japan indicated that the ultra-low interest rate will be maintained and that the yield curve control (YCC) policy would not be changed.

At his first policy meeting after taking office, new Bank of Japan governor Kazuo Ueda decided to maintain ultra-accommodative monetary policy but may conduct a broader review of monetary policy to lay the groundwork for ending his predecessors' massive economic stimulus. As a result, the yen dropped to a seven-week low against the US dollar.

The BOJ commented on the danger that Japan may miss its price target owing to premature financial tightening, which outweighs the risk that inflation will climb above 2% due to delayed yield rises.

However, as of last Friday, the Bank of Japan (BOJ) predicted that the core consumer price index (CPI) for fiscal 2023 would be 1.8%, up from a previous prediction of 1.6%, and that it would be 2.0% in fiscal 2024, up from a previous prediction of 1.8.%. The BOJ also predicted that inflation would slow to 1.6% in fiscal 2025, and that there might be further declines due to unsustainable price growth.

The BOJ anticipates tighter labor market conditions, and the impact of the government's reduction in electricity subsidies could result in higher inflation through the end of 2023.

While the BOJ continues to anticipate that CPI will remain moderate through the middle of 2023, data released last week revealed that core inflation nationwide remained steady at 3.1%, significantly higher than the BOJ's annual target of 2%. Tokyo's inflation rate unexpectedly rose in April and returned to its 40-year high earlier this year.

Due to worries about the soundness of the US banking system and the potential that the Fed may terminate financial tightening after economic growth signaled a halt, the US dollar currency pair was marginally higher on Friday after falling nearly 2.3% in March.

The US downturn coincides with the release of first-quarter growth figures on Thursday, which showed that real GDP rose at a 1.1% annual rate in the January-March period, down from 2.6% in the previous year's final quarter.

The core personal consumption expenditure price index, or Core PCE, excluding volatile products such as food and energy, climbed 0.3% in March, the same rate as in February. While the underlying price index rose 4.6% year on year in March after rising 4.7% in February.

Meanwhile, consumer spending in the United States remained unchanged in March, as an increase in service spending was offset by a decrease in goods spending. This continuous inflationary pressure is projected to drive the Federal Reserve to hike interest rates again next week, causing the yen to remain in a negative trend during this period.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 136.86, 136.93, 137.05

Support : 136.62, 136.55, 136.43               

5H Outlook

1H Outlook

Source: Investing.com                             

Buy/Long 1 If the support at the price range 136.57 – 136.62 is touched, but the support at 136.62 cannot be broken, the TP may be set around 136.91 and the SL around 136.53, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 136.86 – 136.91, TP may be set around 137.10 and SL around 136.58, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 136.86 – 136.91 is touched, but the resistance at 136.86 cannot be broken, the TP may be set around 136.60 and the SL around 136.94, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 136.57 – 136.62, TP may be set around 136.38 and SL around 136.90, or up to the risk appetite.       

Pivot Points May 01, 2023 01:01PM GMT

Sources: Investing 1, Investing 2