USD/JPY Is Back on the Move on Ultra-Loose BoJ Policy Talk

It was a relatively busy day ahead for the USD/JPY. Following the larger-than-expected slide in industrial production, the market focus shifted to the manufacturing PMI. In February, the PMI fell from 48.9 to 47.7 versus a prelim 47.4. The better-than-expected numbers had a limited impact on the Yen, with the PMI unlikely to influence the Bank of Japan.

Bank of Japan monetary policy chatter remained the focal point, with BoJ Board Member Nakagawa speaking this morning. Nakagawa stated that the Bank of Japan must maintain an ultra-loose monetary policy over the near term. On inflation, Nakagawa said,

“There’s a chance inflation may come under downward pressure if wage hikes don’t spread as much as expected.”

Adding,

“It is necessary to support the economy with current monetary easing for the time being.”

From elsewhere, private sector PMIs from China also drew plenty of attention and didn’t disappoint. The all-important Caixin Manufacturing PMI increased from 49.2 to 51.6 versus a forecasted 50.2.

USD/JPY Price Action

At the time of writing, the USD/JPY was up 0.14% to 136.304. A mixed start to the day saw the USD/JPY fall to an early low of 136.081 before rising to a morning high of 136.471.

Technical Indicators

The USD/JPY should avoid the 136.255 pivot to target the First Major Resistance Level (R1) at 136.778 and the Tuesday high of $136.918. A return to 136.5 would signal a bullish USD/PY session. However, the USD/JPY would need hawkish Fed chatter to support a breakout.

In the event of an extended rally, the Second Major Resistance Level (R2) at 137.440 would come into play. The Third Major Resistance Level sits at 138.625.

A fall through the pivot would bring the First Major Support Level (S1) at 135.593 into play. However, barring a Fed-fueled sell-off, the USD/JPY pair should avoid sub-135.5 and the Second Major Support Level (S2) at 135.070. The Third Major Support Level (S3) sits at 133.885.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The USD/JPY sits above the 50-day EMA (135.153). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($135.593) and the 50-day EMA (135.153) would support a breakout from R1 (136.778) to target R2 (137.440) and 137.500. However, a fall through S1 (135.593) would bring the 50-day EMA ($135.153) and S2 ($135.070) into play. A fall through the 50-day EMA (135.153) would send a bearish signal.

The US Session

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. Manufacturing sector PMIs will be in focus. We expect the ISM Manufacturing PMI to have more influence on the USD/JPY.

Investors need to look beyond the headline number, with input and output prices, new orders, and employment likely focal points.

Following the latest round of US economic indicators, investors should also monitor FOMC member chatter.