The Bank of Japan (BoJ) is one of the newest central banks to jump on the bandwagon of rate hikes, and its accommodative financial policies will also remain for the next assembly in July. Current market expectations are unanimously based on a prestige quo and, in the longer term, the probability of a 0. 10% accumulation is estimated at only 3. 7% for the September assembly, while expanding to 22. 3% at the October assembly. The outlook still carries “very wonderful uncertainty” and maintains the central bank’s willingness to increase stimulus if necessary. The reiteration of his same old recommendation is aimed at repelling any warmongering expectations, which in the past were based on the history of the weaker yen. .
Keeping its current policy unchanged will mean keeping its target of -0. 1% for short-term rates and the upper limit of 0. 25% for the yield on its 10-year bonds. So far, the BoJ has shown its determination to keep its yield curve (YCC) intact with competitive bond purchases, in a bid to fend off bond investors looking to challenge its political prestige on several occasions.
While talks are emerging about a hundred basis point (bps) increase after the wonder of rising U. S. consumer price index (CPI), there are still some points of increase. In the US in June, USD/JPY is lately near a new 24-year high. Concerns about the immediate weakening of the yen continue to be highlighted, however, so far there has been a lack of intervention in currencies after months of blasphemy. As Japan is a major oil-importing country, the strain of higher energy costs with a weaker yen may simply ease, with oil costs down more than 20% from their June peak. This may justify the policy of not replacing at the next BoJ meeting, as the BoJ continues its path of divergence with other global central banks.
The boJ’s next assembly will also see the release of its quarterly outlook report, which could lead to an upward revision of inflation forecasts above its 2% target. The previous forecast of 1. 9% might seem underestimated, with core inflation in April and May this year. year already exceeds the mark of 2%. That said, the BoJ has remained firm in its view that charge inflation is transitory and focuses on more potent wage expansion for any sustainability of its 2% inflation target. Given that Japan’s average financial income has not yet recovered in particular (1. 0% year-on-year (YoY) in June), the prestige quo of financial policies is expected to continue.
This can also be justified through a possible downward revision of expansion projections, compared to the last 2. 9% for fiscal 2022. A record point of daily Covid-19 cases turns out to raise questions about the reapplication of viral restrictions and there have been some pushbacks from the government on this, the option for the measures to go into effect remains as the upcoming summer holidays in Japan will pose new dangers of spreading the virus.
Improved threat sentiments led the Japan 225 Index to break through a confluence of resistance at point 27,000, where a downward trend line coincides with a Fibonacci retracement key point of 38. 2%. The formation of a new high, after a recent low, turns out to be an uptrend in the short term. This is accompanied by an improvement in technical orientation, as the moving average convergence divergence (MACD) attempts to cross the 0 mark. An extra can put the 27,645 point under surveillance as the next resistance point
The USD/JPY pair appears to be trading on a similar trajectory to that of us 10-year yields. In the U. S. , especially from 2021 to date, differentials with the U. S. The US is once again the main driving force of the currency pair. That said, the date seems to have been derailed lately, as U. S. 10-year bond yields have been under pressure from recession concerns, but USD/JPY is resilient again. The fall in Treasury yields may lead to a recovery in USD/JPY in the form of a short-term pullback, as expectations of a hundred basis point increase at the Federal Open Market Committee (FOMC) meeting in July continue to be revised downwards.
Technically, USD/JPY continues to trade in a bullish channel, but recent moves seem to bring new control of its resistance to the upper trend line. Any short-term retracement may see the 134. 93 point as a possible support. The persistent bullish wonder in the US, inflation may allow USD/JPY to maintain its bullish bias for now, to observe any formation of a higher low for the currency pair.
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