The Bank of Japan is to announce its rate decision at AEST 6:30 pm tomorrow when the central bank is widely expected to maintain its ultra-loose monetary policy. It may keep its benchmark rate at -0.1% and the deposit rate at 0.10% unchanged. The bank will be most likely to continue capping the 10-year JGB yield under 0.25% by purchasing bonds. Despite an uptick in Japan’s headline CPI to 3%, the bank will probably say they would like to see sustainable growth in inflation to support economic growth. It will be the last six months of governor Kuroda Haruhiko’s term before it expires on April 8, 2023, which also makes it unlikely for him to change the dovish stance. However, how the central will balance its rhetoric between stimulus policy and pressure on the weak Yen will be a focus for short-term traders.
Directional bias – bullish (4-5 weeks)Source: CMC Markets as of 27, Oct (Click to enlarge the chart)
Despite two times of exchange interventions by the BOJ, the uptrend of USD/JPY is still intact. Due to a weakened USD in the last few days, the pair is under pressure as shown in RSI, which had formed a double-top reversal pattern. The pair may extend its downside trend intraday with near-term support of 145.38, which is the low on 24 October. A further potential support could be around the 50-day MA, 142.80, confluence with the 23.60% retracement of Fibonacci, where a rebound opportunity may be in place but it all depends on how the BOJ could steer the volatility. The medium-term resistance may be still at the recent high around 152, a breakout of this level could take the pair to head off above 154.
On the downside, if anything is surprising, such as a turnaround of the BOJ’s dovish stance may spark an intense selloff in this pair, with a possible breakdown below 142.80, diving to the next potential support around 137.60.