- The share of buy orders increased from 53 to 63%
- 64% of open positions are long
- Fingraphs.com: USD/JPY to trade in the 1.23-1.25 region in the next few months
- FXPro and Caxton FX: USD/JPY to aim for 135
- Upcoming events: Japan's Manufacturing PMI (early Friday), US Unemployment Claims, Oil Inventories, ECB Press Conference
The Bank of Japan downgraded its next financial year's inflation outlook amid precipitous drops in oil prices, which continue to see the central bank's 2% goal slip further from achieving. Nevertheless, the BoJ decided to hold off from making any adjustments to its quantitative easing scheme, but expanded a loan programme aimed at spurring lending. Thus, the central bank kept its pledge to expand money base at annual pace of 80 trillion yen via purchasing government bonds and risk assets, the unchanged amount set in October when the bank adjusted its QQE programme due to easing inflation pressures and expectations. The ongoing plunge of oil prices, which have almost halved since October, has kept alive anticipation the BoJ will increase its monetary accommodation in the foreseeable future. Many policymakers are concerned of expanding QQE further with the bank's huge purchases already pushing five-year government bond yields into red territory.
The BoJ now predicts consumer inflation of around 0.9% in the 2014 fiscal year compared with 1.2% estimated in October. The central bank's inflation outlook for the 2015 fiscal year was lowered to 1.0% from 1.7% previously. The BoJ is striving to reach medium-term inflation of 2%, after suffering from almost 15 years of deflation before the introduction of QQE. The BOJ revised upward next fiscal year's economic growth forecast to 2.1% from 1.5%, suggesting that an increase in growth will boost wages and accelerate inflation.
In anticipation of US jobless claims
The number of claims for unemployment benefits is likely to be the main event for USD/JPY, as the next Japan's data (Manufacturing PMI) are going to be released only during the first hours of Friday. The ECB Press Conference is an indirect risk event, it can potentially change the sentiment in the market.
USD/JPY underpinned at 118
Simon Smith, Chief Economist at FXPro, is expecting the Yen to weaken next year. He does not rule out a possibility of USD/JPY surging up to 135, reasoning that the Japanese government is going to push ahead with the policy measures to prop up economic growth.
Nicholas Ebisch from Caxton FX shares a similar view, anticipating moderate appreciation of the US Dollar against the Yen over the next 12 months. He forecasts the currency pair to go up to 122 in a month, subsequently reaching a target of 125 by April. According to the analyst, by the end of 2015 the rate may well achieve the level of 135, on the condition the US macroeconomic indicators do not fall behind the expectations and the Japanese officials introduce more easing measures to promt up inflation.
Daily chart
A combination of the weekly PP and 23.6% Fibo managed to stop a sell-off. Accordingly, the US Dollar is expected to carry on with the recovery from 116, and the longer-term bullish intentions will be confirmed once the price settles above the monthly PP at 119. However, while the weekly technical indicators are in favour of such a course of events, the daily studies suggest the bears are going to remain in control in the short run.
Hourly chart
Long positions are more popular than short ones
The SWFX traders become more and more confident in the ability of the greenback to outperform the Yen, as at the moment 64% of open positions are long and only 36% are short. Exactly the same percentage of long positions is reported by OANDA. In the meantime, SAXO Bank clients remain undecided with respect to USD/JPY - 50% of open positions are long and 50% are short.
The share of buy orders increased as well, but from 53 to 63%, suggesting the demand for the greenback is getting stronger.
Spreads (avg, pip) / Trading volume / Volatility
Overwhelming majority sees USD/JPY above 117
Concerning the weekly forecasts, nearly 29% of the FX Community members participating in the survey expect USD/JPY to stay between 118.3 and 116.4 by the end of Friday. Pazner is motivating his bullish forecast by expecting the ECB programme to be positive for the pair. Alternatively, WallStreet6 sees a possibility of "a more serious further retracement downwards", as "USD/JPY has been trading much lower than during the peak".