- Summary:
- USDJPY remains contained in a triangular pattern. The Bank of Japan's October outlook failed to turn the JPY strong trend. Will the US election do so?
The JPY remains one of the strongest currencies during the pandemic, and the USDJPY pair reflects that strength. The recent USD strength seen on the FX dashboard fails to materialize on the USDJPY pair yet, with only a few days until the US elections.
Two currencies strengthened during this crisis – the JPY and the CHF. However, in the case of the CHF, the Swiss National Bank constantly intervenes by selling the currency. But the Bank of Japan does not intervene, making the JPY’s strength even more interesting.
Bank of Japan Dovish Outlook
Released quarterly, the Bank of Japan’s outlook report focuses on the economic developments in Japan and the bank’s objectives. The bank noted an improving trend in economic activity, but the recovery pace to be affected by the COVID-19 developments.
Inflation remains negative, with the focus on the year-on-year rate. The BOJ expects inflation to pick up gradually, but for the moment, remains affected by lower oil prices and the COVID-19 pandemic.
The dovish part of the BOJ outlook comes from its projected economic growth rate. Compared with the July outlook, the BOJ has revised the growth rate to the downside, mostly based on a delay in recovery of services demand.
Also, the Bank of Japan reiterated that the outlook presented in the October report is based on the assumption that the coronavirus will not spread at a large scale as in the past. Hence, the threat is that the report outlook will be further revised lower should the second wave hit Japan harder than expected.
USDJPY Technical Analysis
The USDJPY formed a pattern that may act either as a continuation or as a reversal. One thing is sure – this is a triangle, and a clear break of either of its trendlines should trigger a run for the measured move.
As such, bears may want to see a break below the 103.75. A daily close below the level implies a move to 100, and a proper stop bears may use is 105. On the other hand, a break and a daily close above 105.50 puts pressure on bears as the target is 110 with a stop at 103.75.
