Fundamental Forecast for JPY: Bearish
Talking Points:
USD/JPY Holds Resistance at 110.00, Bulls Show at Higher-Lows
Japanese Yen pairs saw quite a bit of back-and-forth action this week, with USD/JPY continuing the range-like behavior from the week prior. GBP/JPY did see some fireworks, although that was more-likely coming from dynamics in the British Pound. While USD-bulls remained in-force into Thursday's US CPI release, USD/JPY put in another failed test at the 110.00 level. This had also happened last week, thereby helping to produce a double top formation in USD/JPY at a key area of psychological resistance.
USD/JPY Four-Hour Chart: 110.00 Resistance Holds as Buyers Show at Higher-Lows
Chart prepared by James Stanley
Kuroda Sets the Tone
There were no high-impact announcements on the economic calendar this week out of Japan this week, and the more noteworthy items came from speeches with BoJ Governor Haruhiko Kuroda. Mr. Kuroda offered comments on a number of topics this week, key of which was a call on the Japanese government to step up structural reforms to allow for a more growth-friendly economic backdrop. This is the third pillar of the ‘Abenomics' approach to ending the decades-long struggle that the Japanese economy has had with deflation; and this is a part of the strategy that we haven't seen addressed in some time. Kuroda specifically mentioned that Japan has more work to do on deregulation, and this is likely pointing to a heavily-regulated labor market along with heavily-regulated industries in Japan like healthcare and agriculture.
Of specific interest to short-term dynamics in the Japanese Yen, Mr. Kuroda also touched on the topic of stimulus exit earlier in the week. While the Bank of Japan was nearing a Euro-like scenario earlier in the year, with strong growth in inflation threatening to push the bank away from a massive stimulus program; Mr. Kuroda addressed this head-on when he said that should conditions continue to improve, the BoJ will start to debate stimulus exit. While this may not be an earth-shattering pronouncement, nor did Mr. Kuroda offer any type of outlook as far as timing, the fact that he was willing to touch on this topic speaks volumes. The ECB appeared to try to avoid this as much as possible in 2017, and it merely led to more strength as that omission was taken ominously. It also shows that the BoJ is likely going to remain pedal-to-the-floor until absolutely necessary, and this brings focus on to next week's data.
