Yen Still Being Strong

Many macroeconomic reports are being released that could be important for the yen; two things, however, will prevail: Haruhiko Kuroda re-election as the BoJ governor and the demand for the yen as a safe haven.

Safe haven thing is quite clear: when there’s tumult in the markets, investors are always looking for low-risk assets, and the yen is obviously one of those. As for Kuroda’s second term, the outlook is somewhat mixed. Mr Kuroda is likely to stay, as there are no candidates out there that could replace him, while the QE is still working and his political reputation is good. Achieving a stable rate of inflation and better consumer spending also speak for the current BoJ governor.

If Kuroda is re-elected, the QE is very likely to be continued and even extended. However, one cannot stimulate such economy as Japan for ages, you’ve got to end the QE somewhere and then maintain the balance. Keeping the achieved results is actually the most complex thing in the QE. Still, as long as the inflation rate is not growing by itself, without any support, quitting QE is not an option at all.

All these speculations are still neutral for the Japanese yen for the time being but can become negative in the future.

Speaking of the fundamental reports being published in Japan this week, the situation is quite mixed. The January PPI has fallen from 3% to 2.7% YoY, while machinery orders have soared from 48.3% to 48.8%.

Technically speaking, USD/JPY is downtrending, be it a shot, mid, or long term. Currently, the price is close to the short and mid-term support, with the target at around 107.00. Then, most likely, then it may rebound from support and go up to reach the resistance. If this is the case, the immediate target for the upmove will be at 108.30. After that, many things will depend on the price testing the resistance: if a breakout occurs, the yen may slide both into the upper projection channel and towards the midterm channel resistance at 109.00.

USD/JPY 4H Chart
USD/JPY 4H Chart

This Article was written by Dmitriy Gurkovskiy, Chief Analyst at RoboForex