The Dollar Remains Under Pressure as All Eyes Focus on the Bank of Japan

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The USD/JPY is attempting to form a bottom after pushing through 15-month lows at the end of the first week in March. The fast stochastic has generated a crossover buy signal, in oversold territory which could generally be viewed as an indication of a short-term bounce in the USD/JPY exchange rate.

[Global Economy]

This analysis was first published on April 4th.

The Dollar rebounded after closing at a fresh 15-month low versus the yen, as the yield differential is moving in favor of the yen. Markets are also somewhat nervous this week amid the recent global tumult on the back of increased uncertainty over monetary policy and fiscal policy matters.

Tariff news from the U.S. last week boosted fears of a possible trade war which exacerbated already rising market angst over reduced central bank stimulus, especially in the wake of Fed Chairman Powell's testimony which was seen by some as having a hawkish tone. The warning from the Bank of Japan’s (BoJ) Kuroda that the Bank could look to ending QE in the fiscal year beginning April 2019, further stoked bearish flames, and buoyed the yen. All these developments are definitely in play this week with the BoJ holding a two-day meeting. China Will Focus on the National People’s Congress China opens its 2-week National People's Congress this week with Premier Li setting out the 2018 targets on economic data points including growth, money supply, inflation, as well as the budget.

The Congress is also expected to adopt changes to presidential term limits, removing the two-consecutive term clause, and hence consolidating and strengthening President Xi's, as well as the Communist Party's, grip on power. Meanwhile, it will be most interesting to see the reaction, and possible retaliation, to President Trump's tariff announcement, which was seen mostly as addressing China's excess supply of steel. A possible growth-damping trade war between the two economic powerhouses is a real threat.

A Deluge of Fundamental Analysis: The Asian financial calendar, is filled with fundamental analysis and will be dominated by the above events. There are several important data reports which include Japan's docket features the second look at Q4 GDP, January current account figures, and personal income and PCE. In China, there are the services PMI, trade, PPI and CPI reports on tap. Elsewhere, trade, production and prices data dot the calendar.

The BoJ Takes Center Stage: In Japan, the markets will await the BoJ meeting which is scheduled for Thursday and Friday for any fresh insights on QE after Governor Kuroda told parliament last week he could see ending stimulus in fiscal 2019. Meanwhile, the second release of Q4 GDP which is scheduled for Thursday could see an upward revision higher above 1% relative to the pace in the Advance release.

January personal income and PCE on Friday could continue to reflect soft inflation expectations. In China, the National People's Congress kicks off its two-week meeting on Monday and will be monitored closely for new developments and especially in the wake of possible U.S. tariffs. Data includes the February trade report which is scheduled for Thursday should see the surplus widen.

February CPI which is scheduled for Friday is estimated to see an increase to above the 2% handle on a year over year basis. PPI seen slowing slightly to 4.0% year over year from 4.3%. The USD/JPY is attempting to form a bottom after pushing through 15-month lows at the end of the first week in March. The fast stochastic has generated a crossover buy signal, in oversold territory which could generally be viewed as an indication of a short-term bounce in the USD/JPY exchange rate.

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