USD/JPY – Nothing new from BOJ Minutes

Standard and Poor’s reaffirmed Japan’s long-term credit rating at AA-, with a negative outlook yesterday. Reason for the negative outlook is due to the uncertainty of Shinzo Abe’s policies effectiveness. It seems that market feels the same way as S&P. Minutes of BOJ’s Jan meeting which was released today told us things that traders already knew: BOJ is committed to conduct large-scale buying of government bonds. The question we all have currently is not whether BOJ will continue to ease, but rather will the easing be effective? Many times in the past we’ve seen BOJ fell flat on their collective faces to weaken the Yen. This time round BOJ does have the market behind them as traders believed in the Abenomics hype, with few sellers of USD/JPY willing to bet against him. However, even the most optimistic Abe follower will have to stop and ponder: what can BOJ do that can drive USD/JPY even higher? The same dross that Abe, Aso, and various others have been giving out is starting to lose steam. This is clearly seen from JPY strengthening from the meeting minutes despite the tone of the minutes being exactly the same as what the various Ministers have been saying.

Hourly Chart

Technically, price is still sitting comfortably above 93.50, which is a good sign for the bulls. A break below 93.50 will open up 93.0 and subsequently below 92.50 as possible bearish target. Stochastic indicator suggest that the possibility of such a scenario is lower with a Stoch trough forming around current levels.

Daily Chart

Daily Chart is still showing a strong uptrend. The rising wedge shows that the pace of increase has declined, and current price is threatening to break below the bottom wedge to signal a breakout. Stoch readings are also lower, threatening to break below than the troughs found in Dec 2012 and more recently Jan 2013, suggesting that we could be seeing some breakthrough in bearish direction soon. Word of caution though, is that even though prices closed below the wedge line on 2 occasions, prices rebounded back the next day to bring USD/JPY higher. Hence bears who wish to enter in the light of such strong uptrend will do well to exercise more discretion and utilize more confirmations for their trades.

Fundamentally, Japan really isn’t doing well. Jan’s machine tool orders fell 26.4% Y/Y, higher than the estimated 26.1% but still slower than the fall of 27.5% in Dec. There are also reservations from a few Board members with regards to the upgraded economic outlook which Abe has been actively selling to his fellow Japanese. This suggest that Abe may have been overly optimistic about the effectiveness of his stimulus policies, and we could also see BOJ fall short to hit their unofficial target of 100 USD/JPY which they believe will help to reach the 2% inflation goal.

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