The Bank of Japan concludes the first of two policy meetings this month later today and we aren’t expecting any further stimulus, at least not this time around. The bank is likely to site a stronger labour market and the possibility of higher wage inflation as it leaves monetary policy unchanged. The much-anticipated spring wage negotiations appear to have resulted in widespread wage increases across Japan, which reduces the BoJ’s motivation to pump more stimulus into the economy, despite no real inflation growth at the moment.
If the BoJ elects not to change Japan’s monetary base we may not see much of a reaction from the yen. It’s unlikely that the BoJ will act today given that even if the bank wanted to introduce more stimulus, its meeting at the end of month may be a better time to do it; this meeting is when the BoJ will release its updated inflation and growth forecasts.
Price action in USDJPY is dominated by dollar moves at the moment. The US dollar faced heavy selling at the end of last week on the back of soft US jobs numbers (the NFP’s 200 streak came to an abrupt end), but bulls soon overpowered the bears once again as Feb speakers dismissed the idea they would focus on one data set. Also, US economic data this week has broadly printed better than expected, with Markit’s US Services PMI jumping to 59.2 in March (exp. 58.6) and another survey showed an uptick in economic optimism this month.
The end result is that USDJPY is firmly on the front foot in the lead up to today’s meeting at the BoJ and the release of the FOMC’s meeting minutes and initial jobless claims numbers tonight. The pair has run into some resistance around 120.50; a break of which and its subsequent upward channel may give it the fuel it needs to push back above 121.00. However, the pair is starting to look a little overbought in the near-term and a break of support around 120.00 may see it make a run for short-term trend line support (see chart).