USD/JPY outlook neutral to bearish ahead of BoJ meeting - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that USD/JPY outlook remains neutral to bearish ahead of the BoJ statement to be released Wednesday’s Asian session. According to the analyst, epectations are wide-ranging amid rumors of disagreement among policymakers.

Key Quotes 

“JPY is up 0.5%, strengthening in an environment of broad-based USD weakness with a brief, technically-driven rally that roughly coincided with the European open. Domestic markets have been closed for a local holiday, and headline risk has been limited ahead of Wednesday’s (NA Tuesday PM) BoJ policy decision.”

“Expectations are wide-ranging and recent rumors have highlighted disagreement among policymakers. Gov. Kuroda is said to favor a deeper dive into negative interest rate territory, however we note that only 14 of 40 Bloomberg survey respondents anticipate a cut (11 looking to a 10bpt cut, two looking to a 20bpt cut, and one looking to a 30bpt cut) from the current -10bpt level applied to certain balances. Additional risk surrounds the outlook for the pace of asset purchases, and some rumors have also focused on the potential for yield curve management in an effort to deal with banking sector headwinds. Short-term risk reversals are fading their recent move, the one-month slowly pricing a greater premium for protection for downside risk following a recent fade.”

“USDJPY short-term technicals: neutral-bearish—signals are neutral and remarkably trendless, and recent congestion has centered around 102. Support has been observed around 101.2 with resistance at 103. We await a break of the consolidation range with expectations of a resolution to the downside.”