|

BOJ Preview: Policymakers to remain focused on the economic comeback

  • BOJ expected to maintain rates on hold at -0.1%, focus on the yield-curve.
  • Policymakers awaiting vaccine distribution before reassessing the situation.
  • USD/JPY has corrected from multi-month lows, but bulls still reluctant.  

The Bank of Japan will announce its latest decision on monetary policy this Thursday, although policymakers are not expected to surprise financial markets. The main rate is foreseen steady at -0.1%, while the focus will remain on the yield curve control, which aims to maintain the 10-year JGB yield target at around 0.00%.

Back in December, the central bank extended the deadline for steps to ease funding strains for firms hit by the pandemic. It also announced a plan to seek ways to make its policy more sustainable towards achieving their 2% goal.

Stimulus on hold ahead of vaccine distribution

Prime Minister Yoshihide Suga announced by the end of the year that the country would compile an economic stimulus package worth 73.6 trillion yen ($708bn) that will include fiscal spending worth around 40 trillion yen, to deal with the pandemic-related economic slowdown.

However, the coronavirus situation is worsening in Japan. The country reported on Monday roughly 5,000 new contagions, with serious cases nearing 1,000, putting the health system under pressure. Japan has reported a total of around 335K cases ever since the pandemic started, much better than other major economies, yet not enough to avoid an economic setback.

 In this scenario, the country is awaiting vaccine distribution, announced for February. That said, it seems unlikely that the BOJ would take fresh measures. Instead, policymakers will likely wait until March to reevaluate the situation.

USD/JPY probable reaction

The USD/JPY pair has been consolidating around the 104.00 figure in the last two weeks, retaining its long-term bearish potential, despite bouncing from a multi-month low of 102.60.

Daily basis, the pair has been finding buyers around a mildly bullish 20 SMA but remains far below the larger ones, which maintain their bearish slopes. A long-term descendant trend line coming from March 2020 stands in the 104.30 price zone, while the pair topped this January at 104.39.

It seems unlikely that the pair would show a strong reaction to an on-hold BOJ. Still, if the pair manages to advance beyond 104.40, it could trigger stops and accelerate its advance. The risk will turn to the downside if the pair breaks below 103.50, the immediate support, while a steeper decline should be expected if it extends the slump below 103.10. 

Author

Valeria Bednarik

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

More from Valeria Bednarik
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold pares intraday losses; down a little below $4,100 as focus remains on US NFP

Gold recovers most of its early intraday losses, trading with a mild negative bias near $4,070-$4,075. The US Dollar extends Thursday's recovery from its lowest level since late September, exerting some downward pressure on the commodity. Furthermore, a hawkish US Federal Reserve contributes to the precious metal pullback from a two-week high, which it touched the previous day. Bearish traders, however, seem hesitant ahead of the release of US monthly employment details, which should provide a fresh impetus to the precious metal.

Canada Unemployment Rate set to hold at 6.5% as hiring recovers

Statistics Canada will release its October Labour Force Survey on Friday at 13:30 GMT, with markets anticipating a modest recovery in employment following September's sharp decline. The Unemployment Rate will also be closely watched, as the latest figures could influence the Canadian Dollar.

US Nonfarm Payrolls expected to pick up in October

The United States Bureau of Labor Statistics is set to release October Nonfarm Payrolls data on Friday at 13:30 GMT. The report is expected to show an increase of 65K jobs, up from 29K in the previous month.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.