Market Analysis

Bank of Japan slashes 2019 inflation and growth forecasts

The Japanese yen currency briefly came under pressure on Thursday after Bank of Japan policymakers admitted that they are losing the battle to stimulate inflationary pressures inside the Japanese economy. The USD/JPY pair briefly spiked to its highest trading level of the year so far, hitting 112.40, following more dovish commentary from Bank of Japan officials.

The Bank of Japan’s highly anticipated quarterly report took another bearish turn, when Japanese policy members slashed growth expectations for this year, as they noted that global economic uncertainty has clouded the outlook for the Japanese economy. The Bank of Japan also admitted that the upcoming increase in the consumption tax could further hurt domestic growth.

Following the Bank of Japan’s two-day policy meeting, the central bank decided to maintain its ultra-loose monetary policy stance, with the Bank of Japan noting that they will keep interest rates extremely low until at least the spring of 2020, in a further attempt to stimulate the Japanese economy.

Bank of Japan Governor Haruhiko Kuroda has embarked on six years of aggressive monetary policy easing in a bid to move the Japanese inflation rate to the Bank of Japan’s two percent target. Japanese inflation is currently increasing less than one percent on an annual basis, despite Governor Kuroda’s best efforts.

The Japanese economy also posted a series of weaker than expected data points on Thursday, with industrial production falling at its fastest pace in three years, while retail trade figures contracted on a monthly basis. The world’s third-largest economy is one of many global trading hubs that has been affected by the ongoing trade dispute between the U.S and China.


USD/JPY Daily Mountain Chart Source-Activtrader Platform

USD/JPY Daily Mountain Chart | Source: ActivTrader 


The USD/JPY pair has started to retrace recent gains, with the risk-sensitive pair testing back towards the 111.50 level. A large inverted head and shoulders pattern is present across the daily time frame, with the neckline located close to the 112.00 level. Major near-term support for the USD/JPY pair is located at the 111.30 and 110.90 levels.


Written by Nathan Batchelor, External Analyst

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