BoJ is out of bullets? Technical USDJPY analysis

It appears that BoJ is running out of options as the central bank short on bonds to buy. No matter what the Bank does, Japan’s exports have posted a tenth consecutive month of decline. Will we see further BoJ easing and what is technical USDJPY analysis?

03 August, AtoZForex Bank of Japan (BoJ) appears to be cornered as domestic Japanese banks are running out of bonds to sell. To add to the worries, the country’s exports have tumbled in July at the fastest pace since the great financial crisis.

Halved sovereign bond holdings

The biggest Japan’s domestic banks are short on their government bond holdings, pushing the central bank to the limits of its monetary policy easing. BOJ Governor Haruhiko Kuroda will have a hard time finding willing sellers as the central bank prepared for its policy review at next month’s board meeting, amid concern that the BoJ is running out of bullets.

Japan Post Bank Co. and the country’s three biggest banks have almost halved their sovereign bond holdings to 114 trillion JPY (USD1.1 trillion) since March 2013, the month when the BoJ initiated the buying of securities in hopes to end deflation.

Meanwhile, Government notes held by Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are nearing a level where further reductions would include securities the companies need as collateral in order to secure any deals of their own.

See also: Will BoJ take super easing measures in September?

July exports to force BoJ easing?

To add to the worries, Japan’s exports fell in July at the fastest pace since the financial crisis, largely due to more expensive JPY and lower global demand.

Nation’s exports contracted 14% on yearly basis marking this the tenth consecutive month of decline. At the same time, imports fell 24.7%, resulting in a trade balance of $5.15B. These figures are terrible news for Prime Minister Shinzo Abe, who continues to struggle to reinforce the domestic economy. We already have rumors in the market that BoJ will take bold easing measures in September meeting, but what will the Bank do when nothing appears to work?

Technical USDJPY analysis

Following a break to the downside of a narrowing triangle, USDJPY formed a new low confirming the underlying downtrend.

BoJ is out of bullets Technical USDJPY analysis Technical USDJPY analysis (click to zoom in)

For now, we can wait for a confirmation of daily close below major 100 level to short the pair towards the Brexit low of 99.05. From there we could expect a correction and use it as a counter-trend opportunity to long USDJPY.

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