FxWirePro: USD/JPY long-term perspectives still fragile as BOJ unlikely to intervene owing to lingering deflationary pressures

USDJPY has been spiking closer to 103.223 which is the major resistance at this juncture, jumping to levels above 101.2463 (21DMA) on Friday.

Japanese inflation pressure has been long lasting and in the recent past, it seems to be tapering off, with core inflation edging down to -0.5% YoY in July, the lowest rate since 2011. Recent yen strength and low energy prices weighs in inflation, which now is week below the 2% BoJ target.

Consumer prices in Japan dropped by 0.4 pct year-on-year in July of 2016, the same pace as in the previous two months. It was the fifth straight month of decline as the cost of housing and transport fell while prices of food were steady. Core consumer prices fell 0.5 pct from a year earlier in July, following a downwardly revised 0.4 pct decline in June.

BoJ Kuroda at Jackson Hole, says “will carefully consider how to make the best use of the policy scheme in order to achieve the price stability target”

“Wage growth key to escape deflation and realizing the promise of Abenomics”, according to regional economy minister Yamamoto.

Background:

Blows to risk sentiment will cause JPY appreciation

The Japanese economy has been facing headwinds, and the fundamentals have weakened. Inflation remains well below the CB target.

However, we expect BoJ to kick the can down the road, pushing the horizon of monetary policy further out, as costs of NIRP outweighs the benefits. Monetary and fiscal policy will disappoint. Rebalancing from domestic investors finished.

We foresee room for more USDJPY downside and the forecasts for 1, 3 and 12 months are 100, 100 and 95, respectively.