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Japanese Yen Slides Ahead of BoJ While Chinese Data was Digested. Where to for USD/JPY?

Japanese Yen, USD/JPY, BoJ, JGB, Nikkei 225, China Data, Crude Oil – Talking Points

  • The Japanese Yen softened today ahead of a crucial BoJ meeting
  • Chinese data was better than expected but it wasn’t all good news
  • If the BoJ shift toward further tightening, will USD/JPY resume its downtrend?

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The Japanese Yen slipped lower today ahead of the Bank of Japan’s monetary policy decision tomorrow. The Nikkei 225 equity index found higher ground with the central bank decision appearing to be in the balance after a perceived tightening at its December conclave.

At that meeting, they changed the yield curve control (YCC) program by targeting a band of +/- 0.50% around zero for Japanese Government Bonds (JGBs) out to 10 years. They previously targeted +/- 0.25% around zero.

While there is little expectation for a change in their policy rate which is currently at -0.10%, another change in the target range of long-end yields is being debated.

The 10-year note is trading around the upper boundary of +0.50% after surging to 0.57% last week.

USD/JPY is back above 128.50 after making a low of 127.22 yesterday, a level not seen since last June. Other currency pairs have had a quiet start to the Tuesday session so far.

APAC equities ex Japan are mostly in the red today with Hong Kong’s Hang Seng index leading the way lower, down over 1% at one stage. Wall Street futures are pointing toward a soft start to their cash session today after a long weekend.

Chinese GDP came in at 2.9% year-on-year for the fourth quarter against forecasts of 1.6% and 3.9% previously.

Other Chinese data was released at the same time, with industrial production for the year to the end of December printing at 1.3% instead of 0.1% anticipated and 2.2% prior.

Retail sales for the same period were -1.8% well above estimates of -9.0% and -5.9% previously, although still negative.

Overall, the data was seen by markets as not as bad as anticipated but still highlighting a fragile economy. In other news, China’s population decreased in 2022 for the first time since 1961.

Crude oil dipped today with the WTI futures contract trading below US$ 79 bbl while the Brent contract had a look at US$ 84 bbl before both recovered.

Looking ahead, after the UK jobs data, Germany, Italy and Canada will see CPI readings. Tomorrow will bring the Bank of Japan’s unpredictable monetary policy meeting.

The full economic calendar can be viewed here.

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USD/JPY TECHNICAL ANALYSIS

USD/JPY tried to break above a descending trend channel but has failed and fallen back within it. At the same time it has moved below the 10- and 21-day simple moving average (SMA).

Both SMAs display negative gradients, and this might suggest that near-term bearish momentum might be evolving.

Support could be at the previous lows of 127.46 and 126.36. On the topside, resistance might be at the breakpoints of 129.51, 130.40, 130.57, 131,26 and 131.35

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Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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