BoJ meeting in focus as yen drifts

The Japanese yen continues to drift. Currently, USD/JPY is trading at 107.20, down 0.13% on the day.

It was a quiet week for the yen, which recorded small losses after three weekly gains. The yen has enjoyed an excellent month of April, rising 2.6% against a struggling US dollar. Last week, the yen touched a low of 107.47, its lowest level since March 4th.

Bank of Japan likely to hold the course

The Bank of Japan holds its monthly policy meeting on Tuesday (3:00 GMT). The BoJ is unlikely to make any changes to its current policy. At the last meeting, the BoJ clarified that its yield curve control allows for 10-year government bonds to trade at 25 basis points on either side of zero. The bank also reduced the frequency of its bond purchases, but that is a recalibration rather than a taper of its QE programme.

Perhaps more important for the market is the fact that the central bank appears more optimistic about Japan’s economic conditions. In January, the BoJ revised upwards its growth forecast, from 3.6% to 3.9% for the fiscal year 2021. The bank will publish its quarterly Outlook Report together with the rate statement, which should provide insights as to the bank’s view of Japan’s economy.

Japan’s Retail Sales for March (YoY) could point to renewed economic growth. The consensus for the consumer spending indicator is a strong gain of 4.6%. Retail Sales have declined in the previous three readings, as Covid infection rates remain high and the vaccine rollout has been extremely slow. A strong gain in retail sales would point to a resurgence in consumer spending and would be bullish for the Japanese yen.

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USD/JPY Technical Analysis

• USD/JPY has support at 107.29 and 106.71
• The pair faces resistance at 108.65 and 109.43

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