USD/JPY pares gains ahead of Fed/BoJ

USD/JPY has begun to pare its gains after having surged above key resistance at 111.00 late last week due to reports that the Bank of Japan (BoJ) is considering potentially more aggressive easing actions in the form of additional stimulus measures. This would entail the implementation of negative lending rates to financial institutions in Japan.

Though the yen immediately began to plummet as the market digested this information (resulting in the noted USD/JPY surge), it should be noted that a similar tumble for the Japanese currency occurred when the BoJ pushed interest rates into negative territory in late January. Immediately thereafter, however, the yen embarked on a period of major strengthening for the ensuing months.

Therefore, the effectiveness of the BoJ’s easing tools and tactics has come into question. Could the yen once again shrug off the central bank’s attempts at restraining its rise? This week brings the Bank of Japan’s highly anticipated monetary policy meeting and statement. Indeed, last week’s reports of the BoJ’s plans for more easing has set the tone for higher expectations of action this week. The question still remains, however, as to what sustainable effect that might have on the yen, if any.

Since the end of last year, USD/JPY has been entrenched in an intermittently plunging downtrend as the dollar has declined and the yen has surged. A few of those sharp slides were due to yen strengthening in its role as a safe haven currency during times of market turmoil and volatility, especially earlier in the year. Most recently, the currency pair fell to a major downside support target at 108.00, but has been unable to break down below that key support level as of yet.

Last week’s rebound from that 108.00 support level was largely due to both a dollar resurgence along with the noted reports of potentially impending stimulus actions from the Bank of Japan. Aside from the BoJ monetary policy meeting this week, of course, is the eagerly awaited FOMC statement from the US Federal Reserve. The Fed is not expected to make any changes to interest rates at its meeting this week, as the central bank has generally become increasingly dovish since its rate hike in December, but will provide its current outlook on the common concerns of low inflation and economic growth risks.

The interplay between these two central bank meetings in the US and Japan this week should play a primary role in determining direction for the USD/JPY currency pair in the near-term. From a bearish trend perspective, any return below the 110.00 support level could lead to a resumption of the downtrend towards 108.00 support once again. A further breakdown below 108.00 could then target the next major support objective at 105.00. To the upside, in the event of any further rebound to extend last week’s rally, major resistance can be found around the 114.00 level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT