July BoJ easing expectations & Technical USDJPY analysis


26 July, AtoZForexMarkets are assigning a higher than 50% probability for July BoJ easing at Friday’s Monetary Policy Meeting. Yet, the JPY continues to trend higher. What is happening with USDJPY? Let us review some facts.

July BoJ easing expectations

For the Bank of Japan (BoJ) Monetary Policy Meeting scheduled July 28-29, Goldman Sachs Japan economists expect a 60% probability of BoJ easing. The bank’s economist see additional easing measures as uncertain, including even a “helicopter money” like implementation.

That said, Goldman Sachs expects the BoJ to “center on (1) increased ETF purchases (to around ¥6 tn/year, from ¥3.3 tn currently), and (2) A further 10bp cut on the deposit rate; and a 10bp cut in the rate on the loan support program.”

Meanwhile, UBS’ economists assign probabilities for additional BoJ easing at 50% chance for July, 30% for September, 10% for October-December, and 10% for no easing this year. At the same time as government economic measures are being drawn up.

Supporting the view, markets have obtained Japan’s government stimulus plan document. Stating that the stimulus draft calls for continued cooperation with the Bank of Japan, and adding that the government hopes the central bank will achieves the set 2% inflation target.

Despite the high expectations of further BoJ easing, JPY continues to strengthen. This is likely due to two reasons. First, global economy is spiraling out of control; financial crisis is prevented only ‘thanks’ to central banks. Second, those central banks artificially preventing from the financial crisis are loosing their control.

Technical USDJPY analysis

Morgan Stanley expects USDJPY to keep drifting lower ahead of the BoJ meeting on Friday. Last Thursday’s price test of 107.50 level has failed to overcome the underlying downward trend which has been in place since December last year.

“A disappointing BoJ and the MoF announcing a fiscal package smaller than the market’s current expectations of more than JPY10trn have the potential to push USDJPY lower,” Morgan Stanley added.

At this stage, USDJPY has reached the time tested psychological support at 104 and we could expect some take-profit to take place following a sharp sell-off from 105.8.

July BoJ easing expectations & Technical USDJPY analysis USDJPY D1, Technical USDJPY analysis (click to zoom in)

Nonetheless, scope remains lower towards targets at psychological 103 area, 102 level, and post Brexit low of 101.4. Support levels, meanwhile, are located at major 105 and 105.9 levels accordingly.

Also see: Should you expect July Fed rate hike? Gold analysis

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