USD/JPY drops to 5-week low, BoJ next

USD/JPY has posted slight losses on Wednesday. In the North American session, the pair is trading at 104.29, down 0.12% on the day.

The Japanese yen continues to make inroads against the US dollar. The yen has posted three straight winning weeks and has gained 1.2% in October. The US dollar continues to struggle and the yen has taken advantage, as USD/JPY is at its lowest level since September 21.

Bank of Japan in the spotlight

Bank of Japan Core CPI, the bank’s preferred inflation gauge, came up at -0.1% in August, after two straight readings at 0.0%. Japan’s inflation has been at low levels for years, and this trend is unlikely to change, especially with the ultra-low rate environment across the globe. The BOJ hasn’t had much success in raising inflation, and the bank’s inflation target of two percent appears hopelessly unrealistic.

The markets are not expecting any dramatic news from the BoJ’s policy meeting, which will be held early on Thursday. The BoJ is projected to maintain its -0.1% short-term interest rate target. Negative interest rates have become an integral part of Japan’s financial landscape, and the Australian and New Zealand central banks have publicly stated that they are considering the possibility of negative rates.

Later on Wednesday, we’ll get a look at Japan’s retail sales. Consumers remain apprehensive about economic conditions, and retail sales have declined for six consecutive months. The rate of decline eased to 1.9% in August, after a reading of -2.8% beforehand. However, the consensus for the September release stands at -7.5 per cent.

The US will release Advance GDP on Thursday, the first of three estimates for GDP in the third quarter. After a miserable reading of -31.4% in Q2, the economy is expected to roar back in Q3, with an estimate of 32.0%. The GDP reading should be treated as market-mover and could shake up USD/JPY on Thursday.

USD/JPY Technical Analysis

• 104.26 is providing support, followed by support at 104.07
• There is resistance at 104.76. The next resistance line is at 105.07

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