BoJ Minutes Preview: Little fanfare expected, dovish bias to persist, USD/JPY at a crossroads

• Minutes of the Bank of Japan for October to print what has already been seen. 
• Japan's core consumer price index remains well short of the BOJ's 2% inflation target.
• The tax increase has put a burden on households and that could result in a worse consumer spending.
• Withdrawal of stimulus will begin from 2021 at the earliest.

The Bank of Japan, (BoJ), Monetary Policy Meeting for January is this week which follows the December policy meeting where the BoJ kept policy unchanged, as widely expected, and also leaving its forward guidance for policy rates and overall economic assessment unchanged. There are no changes expected at this week's meeting either. It is ikely to pass us by with little fanfare and the potential for surprise appears to be low. 

This meeting will feature an update to projections, however, as analysts at TD Securities explained, with the major central banks comfortably sidelined, "it will hardly matter as the BOJ can remain out of the limelight for some time." 

However, Japan's core consumer price index remains well short of the BOJ's 2% inflation target, around 1.5% from the target and minutes of past meetings have all outlined that most members say it was appropriate to persistently continue with easing, noting that inflation momentum had already been lost. The BoJ Governor, Haruhiko Kuroda, had also clarified a downward bias in policy rates through new forward guidance, saying the bank's policy is "further tilted" towards monetary accommodation. All in all, caution will likely prevail and no changes are on the horizon.

"With no monetary ammunition left to support the economy, BOJ Governor Haruhiko Kuroda will have to be content with the $120 billion of fiscal spending announced in December to soften the impact of the recent consumption tax hike," analysts at ING Bank argued. "CPI numbers out on Thursday may show a marginal advance, but this is unlikely to lift the depressed Japanese rate environment."

How might the meeting affect USD/JPY?

Technically the pair is at a crossroads yet fundamentals are lacking conviction. The yen has been harboured as a safe haven with traders buying USD/JPY dips since the summer of last year within a rising channel. However, of late, bulls have made their mark in the 110 handle, slicing through the 200-day moving average on the 7th Jan. Depending on where you draw your lines, an additional factor to consider is a trendline from mid-Dec 2018 and April 2019 peaks meeting the 13th Jan resistance. Bulls have broken and held above it in recent days, printing an engulfing daily candle last Thursday and marking a higher-high and low of Friday, albeit closing as a spinning top – (bullish meets bearish).

109.80 would mark a pullback area and possibly encourage further buying on the way to higher-highs towards channel resistance and 111 the figure. However, over the same period of the rising channel, the OBV (On-Balance Volume) has been in decline, pointing to a significant divergence which may lead to a bearish correction and a continuation of the broader, longer-term and subtle bearish trend. However, considering the dovishness of the BoJ, a definitive move back below 110 in USD/JPY as a result of the meeting is unlikely next week. Instead, the yen may find a safe haven bid on unrelated factors. 

USD/JPY daily chart

• Bulls prices trendline from mid-Dec 2018 and April 2019 peaks meeting the 13th Jan resistance.
• Daily engulfing bullish
• Spinning top bearish. 
• Trendline support, 109.80 vs upside targets, 110.50s and 111 zone. 

Chart of the week: USD/JPY, spinning top and channel resistance favours downside correction