25.05.202009:21 Forex Analysis & Reviews: USD/JPY. Bank of Japan's emergency meeting turned out to be "empty"; yen continues to lose ground

The USD/JPY pair started the trading week with a slight increase, compensating for Friday's decline, which, however, also did not differ in scale. The yen is still being traded within the 107th figure, and even the extraordinary meeting of the Bank of Japan members on Friday failed to "stir up" the pair. Traders actually ignored the emergency meeting: despite numerous rumors and fears, the Japanese regulator did not expand the stimulus program and did not lower the interest rate: Kuroda only announced his intentions to extend the lending program from the previous three-month period to the current six-month period. The market was absolutely ready for the implementation of this scenario, and the regulator, in turn, did not bring any additional surprises.

Although before this emergency meeting, traders of USD/JPY showed increased activity and even tested the 108th figure, amid widespread rumors about the easing of monetary policy by the Japanese Central Bank. The head of the Bank of Japan also admitted this scenario, worsening the rumors. Making a statement at the beginning of last week in the camps of the national parliament, Kuroda said that the Central Bank "without hesitation will soften its monetary policy again, if circumstances so require." At the same time, he clarified that the regulator can expand the asset purchase program or lower rates. Kuroda also said that the Japanese economy will remain in serious condition "for some time".

The recent figures published eloquently indicate the difficult state of the Japanese economy. Japan's GDP fell immediately by 3.4% in the first quarter. The key indicator has been declining for two consecutive quarters, so from a technical point of view, we can say that the Japanese economy plunged into recession. And although the indicator came out slightly better than expected (most experts predicted a decline to 4.6%), in fact, this fact did not change anything. On a quarterly basis, the GDP indicator slowed down by 0.9% (against the consensus forecast of -1.2%). But the figure for the fourth quarter was revised downward, to -7.3%. The release structure indicates a reduction in personal consumption (in quarterly terms, the indicator decreased by 0.7%) of capital expenditures (decline by 0.5%) and export volumes (by 0.6%).

A few hours before the emergency meeting of the Bank of Japan, the data on inflation growth in the country of the Rising Sun were published. There is also a downward trend. The general consumer price index expectedly declined to 0.1%. The CPI, excluding prices for fresh food, ended up in the "negative zone", dropping to -0.2%. The core index also fell into the negative area for the first time since 2016. The consumer price index excluding food and energy prices are also disappointing, which only grew to 0.2%.

It is worth noting here that inflation indicators in particular and the economy as a whole began to cause alarm even at the end of last year, that is, even before the coronavirus crisis. Part of the economic downturn is due to tax policy. After the sales tax was raised in Japan, consumer spending collapsed immediately by three percent. Business investment also declined significantly. Similarly, exports showed weak dynamics. In the first quarter of this year, the coronavirus factor joined all the economic problems.

Against the background of such dynamics, traders, in my opinion, reasonably expected a more decisive reaction from the Japanese regulator. But only a joint statement was published by the Minister of Finance of Japan Taro Aso and the head of the Bank of Japan Harukiko Kuroda following the results of the extraordinary meeting. It contained very vague phrases that the government and the Central Bank were ready to take "all measures to maintain price stability and facilitate corporate financing." Further, there is no specifics, except for the announcement that the relevant ministry is working on another additional budget, which will include the allocation of funds to companies affected by the epidemic.

In short, nothing new. Kuroda reiterated his readiness to "take decisive action if necessary" - he has been voicing a similar thesis for several years. At the same time, the Bank of Japan pessimistically assessed the immediate prospects. According to the regulator, it will take "unknown how much time" for the restoration of the global economy, while the ongoing epidemic in other countries will limit the recovery of exports and tourism in Japan. That is, the fact that from today, that is, from May 25, the "anti-coronavirus" emergency regime in Japan is canceled by the yen, against the background of pessimistic forecasts of the Central Bank.

Thus, the technical recession, the slowdown in Japanese inflation, the indecision of members of the Bank of Japan and the risk of a second wave of the epidemic are putting pressure on the Japanese currency. If we talk directly about the USD/JPY pair, the overall growth of anti-risk sentiment plays in favor of the US currency, which now has a kind of priority in the "hierarchy" of protective tools. For example, the resonant "Hong Kong issue" and signs of a cold war between the US and China did not become a catalyst for the decline of the USD/JPY pair. The beneficiary of this situation is the dollar, which will be followed by the yen in the near future.

From a technical point of view, the price in the short-term is expected to rise to the upper line of the Bollinger Bands indicator on the 30-minute chart, that is, to the level of 107.80 - the pair is above all the lines of the Ichimoku indicator and between the middle and upper lines of the Bollinger Bands indicator. On the daily chart, the situation is similar: the pair is also between the middle and upper lines of this indicator, but so far - in the Kumo cloud. The nearest upper target in the medium term is the price of 108.05 (the upper line of the Bollinger Bands indicator on D1).