Yen rebounds after rough week, US Manufacturing PMI next

The Japanese yen has bounced back on Monday. In the European session, USD/JPY is trading at 141.27, down 0.40%. The yen declined on Friday by 1.2%, capping an awful week, with the yen falling 2.2%.

Reuters – BoJ decision could be a close call

Traders are keeping a close eye on the Bank of Japan, which holds a policy meeting on Friday. The BoJ made it to the headlines on Friday, after a Reuters report that the BoJ is leaning towards keeping its yield control policy unchanged. This was not major news, as expectations are that the BoJ will maintain current policy settings. What was noteworthy in the report was that the BoJ had not reached a consensus and the decision could be a close call.

The BoJ has insisted that inflation is temporary and there is no need to tighten policy, but with inflation at high levels, there is speculation that a shift in policy is only a question of time. Last week, Japan’s core inflation rose to 3.3%, the 15^th straight time that inflation exceeded the BoJ’s target of 2%.

If the BoJ were to surprise the markets and tweak its yield control policy, the yen would likely post sharp gains.  Traders will be on their toes for any developments related to the BoJ meeting, which could make it a busy week for USD/JPY.

The US starts the week with manufacturing and services PMIs. The two sectors have been moving in opposite directions, with manufacturing in decline and services showing growth. This trend is expected to continue on Monday – Manufacturing PMI is projected to inch higher to 46.4, up from 46.3, while the Services PMI is expected to rise to 54.4, up from 54.0. The 50.0 level separates contraction from expansion.

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USD/JPY Technical

• USD/JPY has pushed past resistance at 1.4067 and 141.28. There is weak resistance at 142.12, followed by 142.62
• There is support at 139.68 and 138.52

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