Markets eye BoJ minutes, inflation

The Japanese yen is slightly lower in Tuesday trade. Currently, USD/JPY is trading at 103.66, up 0.31% on the day.

BOJ says will review policy

The Bank of Japan will be in the spotlight this week. The bank will release the minutes of its October policy meeting later on Tuesday (23:50 GMT). This will be quickly followed by the BoJ Core CPI, the central bank’s preferred inflation gauge (Wednesday, 5:00 GMT). Inflation remains at very low levels in Japan, and the BoJ indicator is expected to remain mired at 0.0%. This reflects weak economic activity, as Japan’s economy grapples with an economic downturn and a resurgence in the number of Covid cases.

The Bank of Japan has been unable to achieve its 2% inflation target, despite years of ultra-accommodative monetary policy. A prolonged easing policy with huge asset purchases has had negative effects, such as a lack of liquidity. BoJ Governor Kuroda said on Friday that the bank will review its bond purchases whether to adjust the yield curve. However, it’s unlikely that the ever-cautious BoJ will make any significant changes to its current policy framework, despite the growing risk of deflation. Kuroda poured cold water on any hopes of real change in policy, saying that the bank would look at how to make its monetary easing more effective, but would not weaken monetary easing.

Despite the BoJ stance, the Japanese yen continues to make inroads against the hapless US dollar. Last week, USD/JPY broke below the 103 level for the first time since March. If the yen continues to appreciate, BoJ policymakers are likely to express their concerns about the exchange rate.

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USD/JPY Technical Analysis

• USD/JPY faces resistance at 104.01. This is followed by resistance at 104.72
• 103.45 is a weak support level. The next support line is at 102.75
• The pair is slightly below the 10-day MA line. A break above this line would signal an upturn for the pair

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