08.03.201814:13 Forex Analysis & Reviews: USD / JPY: All attention is paid to the inflationary component of Non-Farms

The yen reacted very cautiously to the revision of data on Japan's GDP growth for the fourth quarter of last year. The indicator was adjusted upwards: + 0.4% instead of the previous estimate + 0.2%. This suggests that the country's economy has shown a fairly steady growth since the beginning of the year before last. However, the Japanese currency was "cold" to such news. Paired with the dollar, the yen did not stop at all, in anticipation of key macroeconomic events this week. We are talking about the March meeting of the Bank of Japan and the publication of Non-Farm on the background of a flaring trade war.

The head of the Japanese regulator Haruhiko Kuroda earlier this month stirred the markets with unexpected rhetoric. Speaking in parliament, he said that the Central Bank will consider the possibility of completing the stimulus program in the next financial year (which begins on April 1, 2019). In addition, he allowed an increase in the interest rate and a revision of the benchmark yield of 10-year bonds, as price growth could reach the target level during the year.

According to him, the Bank of Japan will discuss this opportunity "at each of its meetings." After these words, the currency pair USD / JPY tested the 105th figure, updating the 1.5-year minimum. It is important to note here that Kuroda voiced this position during his speech on re-election for a second term. Many experts took this as a program of action.

However, a few days later the head of the Bank of Japan cooled the ardor of bears USD / JPY. First, he clarified that there is no question of turning off the QE until inflation reaches two percent. Secondly, Kuroda emphasized the "bloated" balance of the Central Bank. Thirdly, the head of the regulator said that it would be difficult for him to raise the interest rate due to the acute reaction of the markets. Strengthening the yen is one of the problems of the Bank of Japan, so tightening monetary policy will in any case proceed smoothly. Thus, Haruhiko Kuroda, as a matter of fact, disowned his own words about the time frame of the stimulating program. And if you consider that the Japanese inflation is still far from reaching the target level, the issue of completing the QE is again put off to a "long box".

So, with a difference of several weeks, Kuroda announced two almost opposite positions. Tomorrow, he will have to repeat one of them. With great probability, the head of the Bank of Japan will follow the soft scenario, confirming his "pigeon" attitude. After all, we must not forget that the bellicose rhetoric was voiced by him in the parliament after his reassignment. So, his speech was more political in nature, where we allow some populism and unjustified optimism.

Kuroda described the real state of affairs a bit later and "a little quieter," since his words were already intended for the representatives of the financial world, and not for the political pool. In addition, the "pigeon" position is fully consistent with his previous comments, when he categorically denied the curtailment of incentives until the CPI reaches the required level.

Thus, Kuroda will certainly strengthen his "dovish" rhetoric tomorrow, repeating the main theses of his last interview. On the other hand, the market is ready for this scenario, so it will not give much importance to these words. In general, I expect a restrained reaction of traders to the results of the March meeting of the Japanese regulator, since the main "locomotive" of the pair still is the dollar. The yen can start an independent game only if Kuroda, contrary to all predictions, returns to "hawkish" rhetoric or allows further easing of monetary policy. But both options seem unlikely.

American Non-Farm also follows "to read" a special order. The positive ADP report was completely ignored by the market, which indicates the changed priorities of a fundamental nature.

The fact that the head of the Fed, speaking recently in Congress, said that the growth of wages can remain at an unacceptable level, despite the strengthening of the labor market. And this fact is a problem that affects the rate of interest rate increase. In other words, lowering the unemployment rate and / or increasing the number of people employed in the non-agricultural sector will not determine the vector of the US currency movement.

The focus will be on the growth rate of the average hourly wage. The forecast is rather modest: + 0.3% on a monthly basis and + 2.9% in annual terms. This indicator came out at this level in January and November (in December, + 0.4% m / m), so if the release is on the forecasted levels, the dollar will not gain momentum for its growth. However, any (even minimal) change in the direction of decline will entail another wave of sales of greenback.

Summarizing the above, it is worth noting that the Bank of Japan is unlikely to serve as a catalyst for the growth or decline of the currency pair USD / JPY. Everything will depend on Non-Farm, namely, on the inflation component.

Technically, the pair is trading in a downward direction, with a bearish signal "parade lines" indicator Ichimoku Kinko Hyo. Also, the pair is between the middle and bottom lines of the Bollinger Bands indicator, which is in the extended channel. The lower line of this indicator is the price target of the bearish testing and corresponds to the level of 105.20.