USD/JPY: a dovish outcome expected from BOJ, a bearish bias for USD/JPY?

Currently, USD/JPY is trading at 111.75, down -0.28% on the day, having posted a daily high at 112.25 and low at 111.55.

USD/JPY has been on the defensive since 11th July (114.49) and the bears have been in control down to the aforementioned lows scored today ahead of the BoJ tonight. Disappointing data from the USA was the catalyst and Kuroda will need to deliver a somewhat dovish outcome if he is to maintain any credence given how far away he is from the 2% inflation objective while the yen re-emerges again with the 2017 uptrend, an unfavourable scenario for Japanese exporters. 

"But there is little that BOJ can do having exhausted most QE possibilities including buying equities and targeting the long term JGB rate," argued Boris Schlossberg at BK Asset Management, adding, "although Japan remains in moderate recovery, global forces remain deflationary, including the recent drop in crude."

Furthermore, "no major policy changes are anticipated, with expectations of a markdown in the inflation forecast. Press conference comments on the yield curve control policy will be important in light of the recent fixed rate operation," noted analysts at Scotiabank, adding that policymakers have likely been frustrated by the recent JPY-supportive narrowing in spreads.

BoJ: what to expect this time around? - UOB  

USD/JPY levels

With USD/JPY pressuring below the 50-d sma at 111.74, the next level of major support is 110.81. Valeria Bednarik, chief analyst at FXStreeet noted, from a technical point of view, the pair seems poised to extend its decline as technical indicators turned south with a strong bearish momentum within a negative territory. "The price has extended its slide below its 200 SMA in the 4 hours chart. Currently struggling with the 50% retracement of its latest bullish run," noted Valeria Bednarik.