The USD/JPY made bullish moves prior to the US Federal Reserve’s announcement of its monetary policy decisions and the growth rate of the US economy. The price is settling around the 108.77 resistance level as of this writing, after strong and sharp selling that pushed the currency pair towards the support level of 107.47, its lowest in nearly two months.
The Japanese yen fell against other major currencies, as market analysts warned of a double-dip recession in the world's third largest economy. With the increasing number of COVID-19 infections and the Japanese central bank indicating prolonged monetary support mechanisms, the yen has maintained its downward path. Although officials see the potential upside due to the currency's decline, the yen may face unintended consequences due to another wave of coronavirus.
Yesterday, the Bank of Japan (BoJ) held its policy meeting for April leaving the benchmark short-term interest rate at -0.1% and keeping its target for the 10-year government bond yield at 0%. At the same time, policymakers stated that they would not hesitate to use additional easing measures if necessary to stimulate economic growth. Looking at the remainder of the fiscal year, Tokyo expects GDP to grow at 4%, slightly higher than its forecast in January of 3.9%. However, the corporation lowered its price forecast for this year and expected inflation to be below its 2% target after Governor Haruhiko Kuroda's term ending in 2023.
All in all, the Bank of Japan is concerned about “significant uncertainty” about the extent to which the public health crisis of COVID-19 will affect the recovery, as Japan declared its third state of emergency for two weeks in Tokyo, Osaka and two other places.
Accordingly, the Bank of Japan wrote in its quarterly policy report, “The Japanese economy is likely to recover, although the level of activity will be lower than it was before the outbreak of the epidemic mainly for sectors that provide face-to-face services. We will take additional steps to monetary easing without hesitation as needed, focusing closely on the impact of the epidemic.”
Commenting on the performance of the yen, Hiroshi Shirachi, chief economist at BNP Paribas Securities, said: “It is clear that the risks of a double-dip recession have increased. The impact of the restrictions on Tokyo and Osaka alone will be very significant.”
Japan reported more than 3,800 cases on Monday, raising the seven-day average to just under 5,000 for the first time since January. In total, the country has confirmed 572,000 cases and nearly 10,000 deaths. Therefore, Japan will set up a large vaccination center in Tokyo and Osaka from late May in an effort to accelerate its vaccination campaign at a snail's pace so that elderly people will at least complete the second vaccinations by the end of July, officials said Tuesday.
Japanese Prime Minister Katsunobu Kato told reporters that a vaccination center would be set up in Tokyo on May 24 to give injections for a period of three months. Details of the center at Osaka are still ongoing. All of them will use the Moderna vaccine, which the Ministry of Health is expected to approve in May. Vaccines have so far covered only about 1% of the Japanese population. Japan began a third state of emergency in Tokyo, Osaka and two neighboring regions on Sunday to curb the rapid re-emergence of the virus three months before the Tokyo Olympics.
Technical analysis of the pair:
Despite the recent rebound attempts of the USD/JPY, the general trend is still bearish and will not turn bullish without breaching the psychological resistance of 110.00. Currently, the closest resistance levels are 108.15, 107.65 and 106.90. I still prefer to buy the currency pair from every downside.
Today, the currency pair will interact with risk appetite, along with the US Federal Reserve's monetary policy decisions and statements by Chairman Jerome Powell.
