USD/JPY Forecast: BOJ’s downward revision of inflation forecasts fails to inspire Yen sellers

Bank of Japan (BOJ) kept key policy tools unchanged and revised lower its inflation and GDP forecasts for the fiscal year 2020/21 earlier today. So far, however, the yen sellers have not made their presence felt, leaving the USD/JPY pair in the red at 111.95. 

• USD/JPY: No response to BOJ’s status quo decision

• BOJ keeps policy unchanged, modifies guidance on interest rates

The price action indicates the investors are convinced that the central bank has run out of ammo and may not be able to do much even if the price pressures weaken sharply in the near future. 

That again leaves the Japanese yen at the mercy of the treasury yields. 

The US 10-year treasury yield fell more than five basis points to 2.51 percent yesterday, having created a doji candle – a sign of indecision – last week and may see a steeper decline today if the US data, due at 12:30 GMT, shows the spending on durable goods dropped in March, missing an expected rebound of 0.8 percent. 

In that case, USD/JPY will likely find acceptance below the April 23 low of 111.65. That would validate the failed breakout seen in the chart below and allow further sell-off to levels below 111.00. 

4-hour chart

The bull flag breakout confirmed yesterday failed to accelerate the preceding bullish move from 110.84 to 111.17 (pole). 

A failed breakout is as good as bearish reversal confirmation. 

As a result, the spot could find acceptance below 111.65 and drop all the way back to 111.65. The bearish case, however, would weaken if the pair again bounces up from the rising trendline, clearing the resistance at 112.17.