USD/JPY retreated back towards the 200-period daily moving average today after bouncing off the indicator yesterday. Volatility is likely to pick up in the pair as the Bank of Japan is scheduled to hold its monetary policy meeting in the Asian session.
The majority of economists polled by Reuters expect that the BoJ will push back its forecast for reaching the 2 percent inflation target yet again. There is little expectation that the BoJ will lower the target.
The BoJ is one of few central banks that is nowhere near removing monetary policy accommodation which has been a driver in recent yen weakness. Since the June Fed meeting, the yen is the only currency that has declined versus the greenback.
While it is not expected that the BoJ increases its stimulus efforts, two of the most hawkish members will be leaving the board this month. The BoJ has shifted its focus to interest rates as opposed to the asset buying but the reshuffle of board members could see the central bank reassess different stimulus options in the near future.
USD/JPY bounced from a support confluence on Tuesday and is seen returning to the area today. The 111.72 level was important support in February and had held it higher on several attempts. Confluence is seen near the level as the 200-period daily moving average is found at 111.74.
The currency pair scaled above the 200 DMA shortly after the US elections. There have been two dips below the indicator, one in April and one in June, but neither led to a sustained drop.
A failure to hold above the moving average could have bearish repercussions over the near-term. The next major level of support in the event of a downside break falls at 110.61. The level held the pair higher in late March and early April.
USD/JPY has been trending lower from a high posted last Tuesday. Yesterday’s recovery ended at a trendline drawn from Tuesday’s high, best seen on a 4-hour chart. The same trendline held the pair lower on Monday’s recovery. A bullish breach above the trendline could provide early indications of a bullish continuation of the up trend that started in mid-June.