BoJ Decision Reinforces USDJPY as Key Intervention Level Tested

Summary:
• USDJPY rose on Friday despite soft US data, after the Bank of Japan decided to delay halting its bonds purchase program.

USDJPY tested six-week highs of 158.25 in the intraday session on Friday as the market reacted to news of a decline in Japan’s Industrial Production. However, the pair flattened moments later to trade at 157.06 as investors absorbed the implications of soft US economic data released on Thursday. The market also positioned itself against potential depreciation of the yen following a Bank of Japan (BoJ) decision on bond buying.

The US dollar came under pressure on Thursday after the release of higher-than-expected Initial Jobless Claims numbers. The US economy saw its initial Jobless Claims filings rise from 229,000 to 242,000 in the week ending June 6, beating analysts forecast of 225,000. This signaled a potential setback to the US jobs market after last month’s forecast-beating Non-Farm Payrolls numbers.

Meanwhile, the Producer Price Index (PPI) also missed expectations, coming in at minus 0.2 percent, below the forecast 0.1 percent. This mirrored the CPI data released on Wednesday, which also pointed to cooling inflation, and made a strong case for interest rate cuts beginning September. However, the BoJ’s decision to retain interest rates at 0.10 percent meant that the yen couldn’t capitalize on the US economic data. Furthermore, the Fed also retained US interest rates on Wednesday.

Elsewhere, the BoJ decided against reducing its long-running treasury bonds purchases during its monetary policy meeting. The central bank instead stated that it will put a pause to the program in July-something that caught the market unawares, and increased the pressure on the yen. This development could propel USDJPY to the 160s territory in the new week, barring an intervention by the BoJ. In the near term, the pair will also get propulsion from the higher-than-expected decline in Japanese industrial production in May, which came in at minus 0.9 percent against a forecast figure of minus 0.1 percent.

Technical analysis

The momentum on USDJPY favours an extension of the upward momentum by USDJPY. The currency pair will likely find support at 157.22, with the upside likely to encounter the first resistance at 158.51. A break past that mark will strengthen the upward momentum, and could propel further gains to test 158.75. Conversely, a break below 157.22 will favour the sellers to take control, with the first support likely to come at 157.00. An extension of the momentum will break the support and invalidate the upward narrative. Also, the resulting momentum could push the pair lower to test the second support at 156.73.