Dovish BoJ sparked a dip in the Yen

USDJPY edged out a fresh high, at 110.77, which is the loftiest level seen since Friday, in what has been directionally-limited trading in forex and global equity markets so far today.

The MSCI Asia-Pacific (ex-Japan) stock index is fractionally lower, although near the four-month highs seen last Wednesday. Market participants are waiting for clarity on the US-China trade situation, with hopes generally high that the two sides will reach a compromise at this week’s round of discussions, which will commence today in Washington DC.

The optimism is reflected by the 6.6% rise China’s Shanghai Composite equity index since the start of February. BoJ Governor Kuroda did his version of a dovish turn earlier, saying that if the Yen were to strengthen and was “having an impact on the economy and prices,” and if it was considered necessary to achieve the price target, “we’ll consider easing policy.” He said that this could be by cutting short- and long-term interest rates, and/or expanding asset buying. Given undesirable effects long-term ZIRP has been having Kuroda was cautious, remarking that “we need to carefully balance the benefits and the costs of the step such as the impact on financial intermediation and market functioning.”

This sparked a dip in both the Yen and JGB yields, though the impact has been limited as this is pretty much consistent with ongoing policy, and was less noteworthy compared to the dovish turns at the ECB and, more especially, the Fed.

USDJPY recovered half of the losses seen on Thursday pull back, giving hopes for a move higher after last week’s correction. Hence the move away from 50-week SMA (110.53) and northwards of 20- and 50-day SMA, with Parabolic SAR being positive for 30 trading days, and RSI rising above 50, turns outlook to a bullish one, with next Resistance above 111.00. More precisely, Resistance is set at 110.10, which coincides with  Thursday’s peak, 61.8 Fibonacci expansion and the daily upper Bollinger Band boundary. Immediate Support holds at 110.25 (last week’s low), while in the medium term support is set at 109.90 (20-day SMA).

Further gains above 110.10 along with a move above 200-day SMA could retest 112.00 area ( November’s support at 112.20 converted into Resistance).