USD/JPY Daily Forecast – 15.3.16

Highlight of the Day: BoJ Monetary Policy Announcement

The Bank of Japan (BoJ) is due to release its latest monetary policy announcement during a two-day meeting on Tuesday. This will be followed by a press conference led by Central Bank Governor Haruhiko Kuroda.

Following January’s surprise decision to adopt negative rates which took effect in mid-February, it is widely expected that the BoJ will not announce a­ny changes in monetary policy tomorrow, though some claim that a further dip into the negative zone is not completely off­ the table. Moreover, even though Governor Kuroda has recently confirmed this expectation by hinting that the Bank is not considering any additional measures at the moment, it is important to keep in mind that Kuroda has a habit of surprising the markets, like he did in January when he announced negative rates in the first place.

If Kuroda were to make an additional cut tomorrow, there is plenty of understandable reasoning behind it. Inflation has not lifted, the yen has actually appreciated 5%, Japan’s GDP contracted in Q4 of 2015, there has been a sharp decline in current account surplus as well as in the PPI, and sentiment has been lower among consumers and merchants alike.

The USD/JPY had quite a few volatile days last week due to mixed data coming out of the US. Also, on Friday the pair rose sharply due to a gloomy manufacturing report out of Japan; exports in January dropped the most it has in almost 7 years, 18% of which with China, its largest trading partner. Starting this week, the pair is steady ahead of the monetary policy Statement tomorrow.

In addition to Japan’s woes and the looming danger of the Chinese slowdown in the background, the overall picture for Japan has not been looking so bright. This set of circumstances have certainly been loading the pressure on the BoJ to adopt further easing measures, hence the key question of “when” remains.                                       
→ It is not expected that the BoJ will make any move tomorrow at its monetary policy meeting. If a move is made by the BoJ and more easing takes place, this would shake the

markets and go on to weaken the yen. If, as expected, no move is made tomorrow, investors will still be analyzing the announcement and the press conference for clues as to how the BoJ will likely take further easing measures, and when.