The dollar/yen pair broke through the 113th figure again and is now trying to gain a foothold in this area. The Japanese currency weakens on the eve of the meeting of the central bank, where unexpected proposals for easing monetary policy may be voiced. In addition, intrigue remains about Haruhiko Kuroda's successor, although, according to most analysts, he will remain for one more term. In other words, against the background of pre-holiday fuss this event can significantly affect the dynamics of the pair.
Until recently, the monthly meetings of the Bank of Japan did not differ in originality. Haruhiko Kuroda has traditionally expressed dissatisfaction with the rate of inflation, noted some progress in some sectors of the economy and generally maintained a balance in his statement. Monetary policy also remained unchanged, both currently and in the future. In one of his speeches Kuroda noted that achieving the target inflation rate "can take years," therefore the current parameters of the monetary policy will remain the same for a long time. Therefore, traders were mainly interested in the issue of targeting the bond yield curve. However, in this issue, the regulator is seen to maintain a predictable position.
The situation changed somewhat in October, when one of the members of the Board of Governors Goushi Kataoka voted against maintaining the current parameters of monetary policy and rather sharply criticized the actions of regulators. In his opinion, the Bank of Japan is taking insufficient measures to achieve a 2% inflation rate. "The central bank should increase incentives, rather than go in the opposite direction," Katoka said during the October meeting. This particularly refers to reducing the yield of 15-year bonds, whereas at the moment the Japanese regulator keeps the yield of 10-year government bonds near zero.
With a high degree of probability, we can assume that Kataoka will continue to take a "dissenting" position to the rest of his colleagues. He recently joined the Governing Council (since July this year) and does not have a formal status of a leader. Members of the regulator did not support his proposal, but the market is still afraid that at the December meeting, the Bank of Japan could soften its stance, allowing the probability of "response measures".
The fact that the Japanese economy is feeling quite confident: GDP is growing for the seventh consecutive quarter. Also, unemployment is reduced and the volume of industrial production is increasing. Simultaneously, the level of salaries is growing too slowly, thus slowing the consumer activity of the Japanese. Households prefer to save rather than spend, as a result of which inflation indicators show extremely weak results.
This trend continues for more than a year, and, according to some analysts, the regulator will sooner or later decide to influence the situation using more effective methods. The year before last year, Haruhiko Kuroda personally met with representatives of big business, urging employers to increase the level of salaries for their employees. Such measures were unsuccessful and the regulator began to soften the terms of monetary policy.
To date, the problem of weak inflation has not lost its relevance, so Kuroda at any time can announce an expansion of the stimulus measures. His policy is supported by the country's leadership (primarily the prime minister and finance minister), so he may have room to make a move.
Traders are also considering such a possibility: today the dollar becomes cheaper only in pairing with the yen. In particular, according to Barclays currency analysts, the Bank of Japan may reduce the inflation forecast for the next year. Recently, the central bank conducted its own survey on inflation expectations. The result was not impressive: 0.8% in the fourth quarter of this year and 0.7% in the first quarter of 2018. Such a weak dynamic again shows not the first plan a clear discrepancy between the strengthening economy of the country against the background of continuing low inflation.
Thus, Haruhiko Kuroda is unlikely to support tomorrow the "militant" views of Goushi Kataoka. Nevertheless, the regulator can reduce the inflation forecast, and also allow in its accompanying statement the option of further easing monetary policy within the next year. Such a scenario will weaken the yen, especially against the backdrop of a temporary geopolitical lull in the world.
Technically, the bulls of the USDJPY pair need to gain a foothold above the level of 113.80. In this case, the price will be on the top line of the Bollinger Bands indicator (on the daily chart), and the indicator Ichimoku Kinko Hyo will form one of its strongest signals - a bullish "Parade Line". In this case, the "general" target of the upward movement will be the 115.30 mark (the top line of the Bollinger Bands indicator on the weekly chart). However, for such growth, a rather powerful information reason is necessary: either due to the "dovish" nature of Kuroda's statement, or due to the strengthening of the dollar. The more real price peak is 114.70 (two-month high). Over the past few months USDJPY bulls attempted to break through this level several times, but were unsuccessful. Tomorrow another attempt can be made.
