The dynamics of Japanese inflation did not please traders again. In January, the consumer price index came out at around 0.2%, continuing the negative downward trend. The index has consistently slowed down since the autumn of last year when the oil market collapsed to its minimum value. Japanese inflation does not repeat their trajectory although the quotations of "black gold" have been steadily growing steadily since January. The Bank of Japan is forced to respond to this state of affairs, however so far only verbally. Moreover, the head of the Central Bank Haruhiko Kuroda warned of a possible easing of the parameters of monetary policy, "if it is necessary to achieve the goal."
Low growth rates of inflation rates are due to several factors. First of all, there is a weak dynamics of wage growth. A few years ago, Haruhiko Kuroda tried to give impetus to inflation growth in a rather original way. He met with the country's largest employers with a request to raise salaries for his employees but the method turned out to be ineffective. Although, there were still some shifts for the better. Inflation began to grow only amid the growth of the oil market last year. However, this year, the indicators no longer show a correlation at least the January inflation indicators showed a downward trend.
Despite this state of affairs, the dollar/yen pair demonstrated a minimal response. In the second week, the price already fluctuates within 110-111 that is consistently starting from the boundaries of the specified range. By and large, a USD/JPY pair is currently focused only on American events and on the external fundamental background. Americans can't be surprised at anything: the Fed continues to think about the future of monetary policy, while the market has already laid a multi-month pause in current prices on the issue of a rate increase.
This forces the USD/JPY traders to turn to external factors. One should not forget that the yen is the safe-haven currency. By the way, this factor explains the slight weakening of the Japanese currency in recent days, investor interest in defensive instruments has faded amid progress in trade negotiations between Beijing and Washington. Let me remind you that this week another round of negotiations took place, and according to insider information, the likelihood of concluding a "big deal" is higher than ever.
True, this may take more time. The parties simply do not have time before March 1 to agree on all the nuances of a voluminous document. According to the information of American journalists, the participants of the working group are now working on six memorandums in which structural issues will be identified. We are talking about intellectual property rights, agriculture, monetary policy, and cyberspace. These protocols of intent will form the basis of a future transaction and the key details of which will be discussed by the leaders of the PRC and the United States in a personal meeting. This meeting can take place in the Vietnamese city of Da Nangfrom February 27 to 28. But today, Donald Trump will also hold an important meeting. The outcome of which will affect the mood of the markets. The American president will meet with the head of the Chinese delegation, Liu He, who is the Vice Premier of the State Council of the People's Republic of China.
It is worth noting that China is taking obvious steps toward Washington. Yesterday, the press reported that Beijing allegedly agreed to increase the purchase of American agricultural products, soybeans, corn, and wheat by $30 billion. As a result, these volumes will exceed even those figures that were before the start of the trade war. On the one hand, this is a good sign for those who are awaiting a deal. But on the other hand, China can still be principled in issues that are more sensitive to Beijing, in particular, regarding the regulation of the yuan. Therefore, alertness in the markets remains and the growth of the euro/dollar pair is uncertain.
Hence, for this reason, today's meeting of Trump and Liu He is so important. Its results will make it possible to understand whether numerous rumors about the achievement of key agreements between countries correspond to reality or the "shadow of a trade war" still hovers on the financial world. It is worth noting that the parties are unlikely to announce a deal. With a positive outcome of the negotiations, Trump is likely to postpone the increase in duties on imports of goods from China for another two months in order for Washington and China to finally agree on all the points of the "big deal" and finally stop the trade war.
If these forecasts are justified, the USD/JPY pair will be able to test the 111th figure again with the subsequent assault on the nearest resistance level of 111.40 on the top line of the Bollinger Bands indicator on the daily chart.
