Bank of Japan a dud—can Yellen shake things up?

Overnight, the Bank of Japan released its regular Monetary Policy Statement, and like the past few meetings, the event passed without a whisper of volatility in the USD/JPY.

To recap, the central bank decided to maintain its Quantitative and Qualitative Easing (QQE) program at current levels. On the whole, the central bankers’ inflation expectations ticked modestly higher, with core inflation now expected to print in the 2% range in both FY2015 and FY2016.

Meanwhile, BoJ Governor Kuroda explicitly stated that there was “no chance” that inflation would fall below 1% again, raising speculation that the central bank may be looking to exit its extraordinarily loose monetary policy sooner than many expect. That said, the announcement had almost no impact on the USD/JPY exchange rate, as traders anticipate having plenty of time to shift their interest rate expectations if the BoJ becomes more vocal about an exit strategy.

More immediately, the market just got its first look at June U.S. Retail Sales report. On a headline basis, the measure was a bit scary for U.S. dollar bulls, with the headline Retail Sales missing expectations at 0.2% vs. 0.6% expected and the Core Retail Sales figure, which filters out volatile automobile purchases, printing at 0.4% vs. 0.5% eyed.

However, revisions to last month’s data have taken some of the sting out of the weak headlines, with May headline Retail Sales revised up 0.2% and May Core Retail Sales revised up 0.3%. At the same time, the Empire Manufacturing Index (July) was particularly strong at 25.6 against an anticipated reading of 17.2. After these appetizers, the market is starting to turn its attention to Fed Chair Janet Yellen’s Humphrey-Hawkins testimony to the Senate Banking Committee at 14:00 GMT.

Technical View: USD/JPY

Overall, the USD/JPY has seen little reaction to this week’s economic data, as traders appear to be in“wait and see” mode ahead of Yellen. The pair has recovered from last week’s spike lower, but rates remain broadly within its 3-month range from 101.00 to 103.00. In the short term, the bounce may find resistance at the Fibonacci retracements of the early July drop at 101.66 (50%), 101.80 (61.8%), and 102.00 (78.6%).


Readers should note that Yellen will not necessarily be representing the FOMC as a whole in today’s testimony. Instead, she’ll have a bit more latitude to express her own opinions, even if they diverge from her fellow monetary policymakers. If Yellen strikes a more hawkish tone and hints that the recent rise in inflation is more than just mere “noise,” the USD/JPY could quickly rally toward previous resistance at 102.30 or even the 3-month high at 103.00 in time. However, if she sticks to the recent dovish script, the USD/JPY is likely to tick back toward key support around the 101.00 handle in the near term.

About the Author
Matt Weller

Senior Technical Analyst for Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail ( or on twitter (@MWellerFX).

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