Today, on May 7th, the US Dollar continues its downward tendency against the Japanese Yen. Prior to the start of the European trading session, the US Dollar lost 0,22% of its value. At this point, USDJPY is trading somewhere around 101,47.
Meanwhile, the Bank of Japan published April's meeting minutes. The minutes are telling about some problems in the Japanese economy. According to them, the participants tried to find the relationship between higher inflation and lower economic growth.
Many of them had expected higher inflation maid an economic slowdown. Still, the figures turned out to be away from their expectations, which made the Bank of Japan to hesitate and thing about the situation more thoroughly.
Most of the BOJ members assume that non-manufacturing companies (which account for a minor part of the Japanese economy) create excessive joss as compared to other sectors, thereby toughening labor market conditions and supporting inflation.
The pace of income growth and inflation has been outpacing the pace of economic growth in Japan. One of the members assumes that higher income and prices amid limited demand will be inconsistent and unstable. In 2015, Japanese corporations are expected to see lower incomes, which will result in lower salaries.
Consequently, the Bank of Japan decided to leave the money-and-credit policy unchanged, thereby confirming the planned financial injection to the amount of 60-70 trillion yens per year.
Still, they believe that the economic situation in the country almost matches the forecasts.
At the same time, the Japanese financial market is back after the weekend. Market participants seem to be further strengthening of the Japanese Yen amid a downtrend in the market of Nikkei Stock Average, which is currently down by more than 300 points.
The Dollar decline against the Yen is curbed amid active dollar purchases by Japanese importers. If Nikkei drops below 14000,00, (while it is currently trading around 14153,00), USDJPY may reach 101,00. Some major investors are bullish on USDJPY (which means weakness for the American currency).
At the same time, most market participants will be waiting for Janet Yellen's speech scheduled for today. If she gives us to understand that the Fed is going to suspend the tapering of QE, this may trigger a dollar sellout, thereby provoking a further rally in the market of USDJPY.
The comparative chart below shows the relation between Nikkei and USDJPY.
The Daily chart shows that Nikkei dropped in early May 2013. USDJPY rallies when the US Dollar shows weakness.
The US Dollar is declining amid higher geopolitical risks – the situation in Ukraine. Those risks promote the idea of investing in safe-haven assets. The Japanese Yen is one of them.
USDJPY: Mid-Term Prospects
According to Masterforex-V Academy, the Daily chart of USDJPY shows that the price first set a major high at 105,431 on December 31st 2013 and then retraced to 100,762 on February 3rd 2014. Later on, the price resumed the rally to set a local high at 104,105. The a local low was set at 104,412.
The levels of the ascending and descending MF sloping channels form a classic «descending triangle». After hitting a 3-week low at 101,50 yesterday, we can expect the US Dollar to show further weakness, if the price breaks the ascending sloping channel and hits pivot 101,412. If this is the case, the next target is 101,206. A break below it will resume the long-term trend in the market of USDJPY to drop down to 101,00.
Alternatively, if the price manages to rally, we can see the price rallying up to 102,236, and further up to the top of the descending sloping channel. A break above this top may well give us the reasons to expect a rally up to 103,008.
