31.10.201816:04 Forex Analysis & Reviews: USD / JPY. Bank of Japan voiced habitual threats

The October meeting of the Bank of Japan was expected to be "passing". The regulator left the parameters of monetary policy in its previous form and voiced familiar rhetoric. However, the tone of Haruhiko Kuroda's speeches from meeting to meeting becomes more "dovish", which means that in the next two years, the Japanese Central Bank can only change its policy towards easing.

In general, after the release of the latest data on the growth of Japanese inflation, this behavior of the regulator is quite predictable. On a monthly basis, the consumer price index for the first time since April showed a negative trend, dropping to zero. In annual terms, the indicator also fell, to 1.2%.

In other words, the weak growth of inflation was replaced by a slowdown, and this fact could not be ignored by the Central Bank. Indeed, the regulator lowered inflation forecasts. According to its estimates, the base CPI (that is, excluding volatile prices for fresh food products) will grow by only 0.9% this year (previously it was expected to grow to 1.1%). Next fiscal year, which begins in Japan in April, is projected to increase inflation to 1.9% (previous forecast 2%) and in 2021, up to two percent, whereas earlier, the Bank of Japan had planned to exceed the target level this year, reaching 2.1%.

Thus, the Japanese regulator clearly outlined the temporary guidelines. Before 2021, the monetary policy could be revised only in the direction of further easing. During today's press conference, Kuroda reminded traders about what measures the Central Bank could take. This is an increase in the money supply, and an increase in the volume of asset purchases and, of course, a reduction in the rate further into the negative area. Although he acknowledged that such a scenario is not basic, the hint was quite obvious. If inflation continues to weaken, the Bank of Japan will use the available leverage.

Let me remind you that in January 2016, Kuroda shocked the markets with an unexpected decrease in the interest rate on deposit accounts to -0.1%, although literally several weeks before that he ruled out such an option. Now, the head of the regulator not only allows such a scenario, but also warns about its implementation. Therefore, taking into account the wayward behavior of the Japanese regulator, each subsequent meeting will be accompanied by the risk of monetary policy easing in one form or another.

By and large, the market was accustomed to the "dovish" comments by Haruhiko Kuroda, and the reaction of the USD / JPY pair to today's meeting was minimal. In the next two years, the Bank of Japan should not expect tougher rhetoric, so traders will continue to ignore the "threats" Kuroda until he implements them. Having stated this fact, market participants focused on the news of the external fundamental picture. The yen still has the status of a defensive asset, so today's flat of the USD / JPY pair can be attributed to an ambiguous news background.

Thus, the Chinese manufacturing activity index (PMI) fell to the level of 50.2 points. The last time such weak numbers were recorded more than two years ago, in the summer of 2016. Let me remind you that last week, China published data on GDP growth and industrial output. Indicators have disappointed the market, as demonstrated a significant slowdown. Today's release only added to the negative picture and increased the demand for protective tools, including the yen. Also, the Japanese currency is in certain demand because of the frequent "collapses" in the stock markets.

On the other hand, the financial world retains hope for the end of the trade war, in the context of the planned meeting between Donald Trump and Xi Jinping at the G20 summit in late November. Experts are quite vigorously discussing possible scenarios of a hypothetical deal, especially after Trump's corresponding comments. Earlier this week, the American president announced that he "anticipates" the conclusion of a trade agreement of a grand scale. Otherwise, the president added, the States will impose duties on the remaining goods of Chinese imports. However, even the minimal likelihood of a "truce" reinforces the risk sentiment in the market, while the demand for yen weakens.

The kaleidoscope of events quickly changes its color, but on the whole, the yen continues to lose its attractiveness, especially against the background of the strengthening of the American currency. Record growth in consumer confidence, a confident ADP report and a high probability of a rate hike in December are pushing the dollar up, and the pair of USD / JPY is no exception.

The technique also speaks of continued growth, with probable testing of 113.80. The pair continues to trade in an uptrend, being in the narrowed channel of the Bollinger Bands indicator, while the price is between the upper and middle line of the indicator, which are the levels of support (112.60) and resistance (113.80). The narrowed channel indicates that the pair is preparing for a jerk, and, most likely, this jerk will be north, since on the daily chart, the pair is above all lines of the Ichimoku Kinko Hyo indicator, and this, in turn, means the generated "Line Parade" which means the predominance of the trend signal, bovine. The upward movement is also confirmed by the signals of the MACD and Stochastic oscillators, which are in the overbought area. Thus, the immediate goal of testing for the pair is the mark of 113.80.