JPY Sold On BOJ Guidance

The Japanese Yen has been under selling pressure over the European morning on Tuesday following the April BOJ meeting held overnight. As expected, the BOJ held its monetary policy in place, though there were upward revisions to the banks economic forecasts.

Growth Forecasts Lifted

The BOJ now forecasts the Japanese economy to contract by 4.9% over fiscal year 2020-21, an improvement on the prior 5.6% contraction projected in the bank’s January forecasts. Additionally, for the current fiscal year, the bank now forecast 4% growth, revised higher from the 3.9% projection made in January. Looking further out, the BOJ now forecasts fiscal year 2022-20223 to see 2.4% growth, up from the prior projection of 1.8%.

Better Demand Noted

The BOJ cited “stronger domestic and external demand” as the key factor in the upward revisions and noted that while the economy will remain weaker than pre-pandemic levels “for the time being”, the impact of the virus is “waning gradually.”

Outlook Still Unclear

Despite the better set of forecasts, however, the BOJ was clear in warning that its outlook is still “highly unclear” as a result of the pandemic. The BOJ noted that progress within the economy will depend firmly on the path of the pandemic both on a domestic and global level.

Inflation Forecasts Lowered

There was a further dovish twist to the meeting as, despite the better GDP forecasts, the BOJ once again revised lower its inflation forecasts. The updated forecasts now project inflation of 0.1% for fiscal year ending in 2022, down from 0.5% previously. Looking ahead, the BOJ sees inflation hitting just 0.8% in 2023 and 1% by 2024, still well below the 2% inflation target that has eluded governor Kuroda during his term at the bank.

Easing to Remain

In terms of forward guidance, the BOJ noted it will continue with its current easing “as long as it is necessary” and noted that it would “not hesitate to take additional easing measures if necessary.” In all, it was a fairly muted meeting though it seems the big takeaway for traders was the downward revision to inflation forecasts, squashing the likelihood of any tightening in the near term. With this in mind, traders will now be keeping an eye on the progress and pace of the country’s vaccine rollouts as it continues to the battle a third wave of the virus which has recently seen fresh restrictions in certain regions.

Technical Views

USDJPY

The sell-off in USDJPY has seen price collapsing through both the 109.86 and 108.39 levels. However, buyers stepped in as price approached the 107.11 level with the pair now retesting the 108.39 level from below. Back above here, there is room for a continued push higher back towards the 109.86 level first. Should 103.39 hold, however, focus will be back on a test of the 107.11 level next.

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