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After the last BoJ’s publication of key currency views on July 15, although USD/JPY extended its upside effect, it has been restrained at 107s, the pair sharply declined on a less-aggressive than-expected BoJ’s additional monetary easing on July 29 and after that it has stuck to a range between mid- 98s and mid-107s.
The next BoJ monetary policy meeting (MPM) on September 20-21, again, will be a significant market event. At the previous meeting, the Bank disappointed the market with a less-aggressive-than-expected monetary easing; the Bank decided to increase purchases only in ETFs while they kept policy rate and JGB purchases unchanged.
However, the BoJ said in the statement that “the Bank would conduct a comprehensive assessment of the developments in economic activity and prices under “QQE” and “QQE with a Negative Interest Rate” as well as these policy effects at the next MPM.
This has boosted various speculations on the BoJ’s policy and some market participants seem to speculate the “assessment” would suggest that the Bank will abandon its 2% inflation target and slow down its monetary easing.
On net, JPY has appreciated against the G-10 currencies other than NOK over the period and appreciated by 3.1% in trade-weighted terms. In the short-term, we expect USD/JPY to be range bound, as we think the relevant risk both to USD and JPY is skewed towards currency weakness.
Consequently, the major downtrend still remains intact as the price declines in sloping channel. Long Legged Doji while 7EMA crosses below 21EMA, price dips are in conformity to leading & lagging indicators and massive volumes.
Despite tight range between 102.436 on the north to 100.748 on the south, the pair manages to break supports at 100.531.
Hence, we reckon USD/JPY upside to be limited in the short-term, as we think the risk to USD is skewed towards downside as well (1m ATM IVs are the live evidences for this). USDJPY either to remain range-bound into the next BoJ MPM or continue to slide further, while the short-term trend in USD would be affected by various factors, including UST yields, USD’s valuation and relevant developments in the US Presidential election.
