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14.01.2021 11:29 PM
USD/JPY. Kuroda's pessimism, closed Japan and fiscal stimulus expectations

The Bank of Japan will hold its very first meeting for the year on January 21. According to most analysts, the Japanese central bank will keep all the parameters of monetary policy in the same form, despite the worsening epidemiological situation in the country. At the same time, BOJ Governor Haruhiko Kuroda warned that this issue remains open. According to him, the central bank is ready to take additional steps to ease monetary policy "without hesitation" - if necessary. And although Kuroda repeats this phrase with enviable regularity, the yen's position has faltered once again. Kuroda voiced a rather pessimistic rhetoric, making it clear that the central bank will keep the previous accommodation rate and low interest rate.

However, internal fundamental factors influence the dynamics of the Japanese currency. The yen focuses primarily on the external fundamental background, which determines the level of general demand for protective instruments. The USD/JPY pair collapsed to the middle of the 102nd figure following the high-profile events in the US capital, but later buyers seized the initiative. Firstly, the political battles in the US have become predictable, and secondly, traders of the pair succumbed to the strengthening of the dollar, which is growing against the background of rising Treasury yields, in anticipation of large-scale fiscal stimuli.

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The so-called coronavirus factor acts locally. If at the beginning of 2020, traders tracked the dynamics of the spread of COVID-19 around the world, responding to constantly updated anti-records, then at the moment the impact of the coronavirus has been, so to speak, "localized". For example, yesterday the yen slipped on reports that an emergency regime was introduced in four more prefectures in Japan. The regime will now affect 11 of the 47 prefectures, where more than half of the country's population lives. In fact, we are talking about a lockdown with all the ensuing consequences - including for the national economy. In addition, the Japanese have completely closed themselves off from foreigners. Japan isolated itself at the end of December, but businessmen from 11 countries with which business agreements were in force could still get into the country. We are talking about businessmen and business delegations from countries and regions of Asia, including China, South Korea, Thailand, Vietnam, Singapore and Malaysia. Now they were also banned from entering - at least until February 7th. According to Johns Hopkins University, Japan has 302,000 COVID-19 cases (out of a population of 125 million). More than 4,000 people have died from coronavirus complications.

Against the background of new quarantine restrictions, there are rumors that the BOJ will ease monetary policy next week. These rumors intensified after Kuroda's speech, who said that "the country's economy is in a difficult situation." At the same time, he repeated the phrase that the central bank "will not hesitate" to take additional policy easing measures if the BOJ members come to the conclusion that such measures are necessary. Obviously, we are talking about expanding the incentive program. The Japanese central bank may also lower its target for long-term interest rates and step up asset purchases, while accelerating the pace of expansion of the monetary base. It is possible that such options will be combined.

In other words, the yen does not have its own arguments for growth. Therefore, USD/JPY traders will primarily focus on the dollar's behavior. Which, in turn, is waiting for additional fiscal stimulus. Today, the American media, citing anonymous sources in the Biden team, reported that the amount of additional assistance could be increased to $2 trillion. Such prospects keep the greenback afloat - also against the yen. According to preliminary information, the expansion of the rescue package will be announced this week – through the mouth of Janet Yellen or Joe Biden.

Given the decline in anti-risk sentiment, the general strengthening of the dollar and the BOJ's intention to further weaken the ultra-accommodative policy, medium-term growth prospects open up for buyers of USD/JPY.

From a technical point of view, the pair also retains the potential for succeeding growth – at least to the upper line of the Bollinger Bands indicator on the daily chart, which coincides with the lower boundary of the Kumo cloud and corresponds to the price mark of 104.40. In addition, if the Tenkan-sen and Kijun-sen lines on D1 intersect (and they are very close to this), the Ichimoku indicator will form a Golden Cross signal, warning of a trend change. This fact will open the way to the next resistance level of 104.70 (the lower limit of the Kumo cloud on the same timeframe). However, for such a breakthrough, an appropriate information guide is needed, which, obviously, will be associated with the expansion of the package of additional assistance to the US economy.

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