BOJ Maintains Yield Control Stance Amid Inflation Speculation

The Bank of Japan (BOJ) sees no immediate necessity to adjust its yield control settings, asserting that it still has flexibility within the 10-year bond yield ceiling. Operating under a yield curve control (YCC) policy, the BOJ aims for a -0.1% target for short-term interest rates and a 0% target for the 10-year bond yield. While adjustments were made in July, allowing the 10-year yield cap to fluctuate within upper and lower limits of 1%, speculations arose due to prolonged inflation exceeding targets. Asahi Noguchi, a BOJ board member emphasizing reflation, dismissed these speculations, highlighting that there's room for a 1% cap, given that long-term interest rates are around 0.8%.

The upcoming BOJ policy meeting on Oct. 30-31 might provide insights, with Noguchi anticipating upward revisions in the bank's growth and inflation projections. He stressed the need for sustained wage growth to facilitate lasting inflation, cautioning against premature adjustments. Noguchi noted potential downside risks, such as China facing deflation and low growth similar to Japan's historical challenges. Despite rising household inflation expectations, he warned that if wage growth lags, consumers might cut spending.

Concerns about Japan's trade-reliant economy persist due to global headwinds, including the impact of higher U.S. interest rates, a weakening yen, and uncertainties around oil prices. The Reuters Tankan poll indicated subdued business morale among Japanese manufacturers in October, with some companies considering relocating production from China due to the prolonged slowdown, impacting Japan's largest trading partner.

Reflecting the cautious economic outlook, Japanese companies, via a Reuters survey, expressed a desire for Prime Minister Fumio Kishida to implement a stimulus package exceeding ¥10 trillion. This sentiment aligns with Japan's core machinery orders falling for two consecutive months in August, indicating concerns about a global economic slowdown and China's uncertain recovery.

Shifting to the global context, the U.S. dollar strengthened on the back of higher-than-expected consumer prices in September. The Labor Department's report showed a surprising surge in rental expenses, influencing markets and potentially affecting the Federal Reserve's interest rate decisions. While some expect the jump in rents to reverse in the coming months, others believe the Fed might maintain higher rates for a more extended period to achieve its 2% inflation target. However, geopolitical factors like conflict in the Middle East and higher U.S. Treasury yields could discourage the Fed from tightening monetary policy further.

Consequently, it is anticipated that this will exert ongoing downward pressure on the yen. Analysts foresee that should the currency pair surpass the 150.00 threshold, it could prompt intervention from Japanese authorities, mirroring patterns observed earlier.

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

Resistance : 149.82, 149.85, 149.89

Support : 149.74, 149.71, 149.67

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 149.64 – 149.74 is touched, but the support at 149.74 cannot be broken, the TP may be set around 149.84 and the SL around 149.59, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 149.82 – 149.92, TP may be set around 150.05 and SL around 149.69, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 149.82 – 149.92 is touched, but the resistance at 149.82 cannot be broken, the TP may be set around 149.73 and the SL around 149.97, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 149.64 – 149.74, TP may be set around 149.40 and SL around 149.87, or up to the risk appetite.       

Pivot Points Oct 13, 2023 04:54AM GMT

Sources: Investing 1, Investing 2