Markets attention shifts on Bank of Japan’s interest rate decision

BOJ’s interest rate decision in tomorrow’s early Asian session serves as the last monetary policy event for this week. Bank is widely expected to keep its ultra-loose monetary policy stance unchanged for another decision, keeping its policy rate in the negatives despite spiralling inflationary pressures in the Japanese economy. Japan’s inflation rate climbed higher for another month according to the latest CPI print, with the rate reaching the 4.3%, more than double from the bank’s 2% target level. Soon to be appointed Governor Ueda has stated that he has in mind some policy tweaks, yet the market does not foresee the exit of decades long eased monetary policy stance via interest rate increases. Many economists however, foresee Ueda terminating the YCC policy, put in place by his predecessor Governor Kuroda, expelling the 0.5% ceiling of the JPY 10-year treasury yield completely in 2023. According to the latest JPY OIS data, the market places a 93% probability in the scenario where the BOJ moves forth with no change in the key policy rate, keeping it steady at -0.10%. Should that be the case we would expect to see further weakness in the Yen or at least remain negatively susceptible to any strength of its counterparts moves. That therefore may force the bank to buy more JGB’s to protect the Yen from further deterioration. Japan’s revised GDP results for Q4 was revised lower than expectations at 0%, which showcases the ongoing growth recovery problems the nation faces. Japan narrowly avoided a technical recession, yet last quarter stagnant results worry investors. China’s CPI print for February earlier today fell to 1% significantly lower than the expectations for an easing to the 1.9%, and the figure serves as a fresh 12 month low. Similarly, PPI prices dropped by -1.4%, below market expectations of -1.3%, recording five months of consecutive declines. Bank of Canada opted to keep its overnight policy rate on hold at 4.5% as widely anticipated and the Loonie faced pressure, deteriorating further, inching closer to its four-month low levels. Hot piece of data from both the JOLTS jobs openings and ADP Non-Farm employment figures continue to point out that the US labour market remains tight and resilient, providing slight support for the greenback and more confidence in the Fed’s case for extra tightening. Later today the market awaits for the updated initial jobless claims figure for the past week. Expectations for an increase to 195K compared to 190k last week’s figure, could weaken the dollar, but from a historical point of view the number constitutes as a solid figure. Eurozone’s GDP results for the prior quarter narrowly avoided a technical recession as the growth rate was reported at 0%. ECB President Lagarde has expressed her views in a recent speech, commenting a 50-basis points rate hike in the next meeting is a “very, very likely scenario”.

USD/CAD extended its run yesterday and broke past previous 1.3760 support now turned resistance. We maintain a bullish bias yet we note the possibility for the move correcting lower since the RSI stands above the 70 overbought threshold. Should the bulls reign, we may see the break of 1.3820 (R1) level and the move closer to 1.3880 (R2) level. Should the bears take over, we may see the break below 1.13760 (S1) and the move near 1.3700 (S2) level.

USD/JPY is confined between R1 and S1 levels after the break below the ascending trendline. We hold a sideway bias for pair given the RSI records a reading of 50. Should the bears reign, we may see the break below 135.50 (S1) and the move towards 134.00 (S2). Should bulls take over, we may see break above 138.00 (R1) and the move towards 139.40 (R2)

Other highlights for the day:

Today we note the Sweden’s month on month GDP rate for January and Czech Republic’s Trade balance also for January. 

USD/CAD H4 Chart

Support: 1.3760 (S1), 1.3700 (S2), 1.3644 (S3)

Resistance: 1.3820 (R1), 1.3880 (R2), 1.3940 (R3)

USD/JPY H4 Chart

Support: 135.50 (S1), 134.00 (S2), 132.30 (S3)

Resistance: 138.00 (R1), 139.40 (R2), 141.00 (R3)

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