Two Fridays ago the case for long AUD/JPY trades appeared in AUD/JPY – Getting on Board . After a spike above the previous highs, the pair has pulled back. Today’s announcement from the Bank of Japan may trigger another up leg.

The BoJ will make its monthly monetary policy statement today, and announce its Monetary Base target level. The sales tax rate in Japan goes up this month – from 5% to 8%. It’s widely expected that the BoJ will hold firm, staying any further stimulatory action until the economic impact of the sales tax increase is known.

However, there is a case for pre-emptive action. The increase in sales tax is very likely to drag on consumer activity – at least initially. The question is not if, but by how much. With this knowledge, the BoJ may decide to move, despite the consensus. If it does, a weaker Yen is on the cards, and the recent AUD/JPY pullback may be a trading opportunity:

20140408 audjpy

Note the basing behaviour on the 4 hour chart around 95.35. The time of the BoJ statement is not known – but will most likely be during the Asia Pacific afternoon session. Traders seeking to position ahead of the event could use this base as a risk management tool, buying at current levels with a stop loss below 94.50:

20140408 audjpy tkt