Yen Strengthens Modestly Ahead of BoJ Decision; Forex Markets Quiet

Yen trades mildly firmer in tight range today, as markets are now keenly awaiting BoJ rate decision in the upcoming Asian session. No change in monetary policy is expected as BoJ should stick to negative interest rate for now. There is also no need to tweak the parameters of Yield Curve Control, with the yield curve being smooth without any distortion.

A critical aspect of the BoJ meeting will be the new quarterly economic projections. The market is particularly interested in whether the central bank projects core inflation to remain around 2% target throughout the forecast period. This projection is a key prerequisite to continue speculating on a rate hike in April.

In the broader forex markets, trading activity has been relatively subdued today, with most major currency pairs and crosses remaining within the range set on Friday. Yen has emerged as the stronger one, followed by Sterling and New Zealand Dollar. On the weaker side, Euro, Australian Dollar, and Swiss Franc are lagging, while Dollar and Canadian are showing mixed performance.

Technically, Nikkei’s up trend resumed today and hit another 34-year high. Near term outlook will stay bullish as long as 35371.25 support holds. Next target is 161.8% projection of 30538.28 to 33853.46 from 32205.38 at 37651.22.

In Europe, at the time of writing, FTSE is up 0.07%. DAX is up 0.40%. CAC is up 0.39%. UK 10-year yield is down -0.0535 at 3.882. Germany 10-year yield is down -0.064 at 2.284. Earlier in Asia, Nikkei rose 1.62%. Hong Kong HSI fell -2.27%. China Shanghai SSE fell -2.68%. Singapore Strait Times fell -0.10%. Japan 10-year JGB yield is down -0.0152 at 0.654.

Silver tumbles amid rate cut expectation adjustments

Silver falls steeply today as the decline from 25.91 resumes. This steep selloff in the precious metal is interpreted, at least partly, as a reaction to the recent market adjustments in global central bank rate cut expectations. With the anticipation of prolonged high interest rates, the opportunity cost of holding precious metals like Gold and Silver remains elevated, putting additional pressure on their prices.

Technically, near term outlook in Silver will stay bearish as long as 22.83 resistance holds. Next target is 100% projection of 25.91 to 22.50 from 24.59 at 21.18.

Price actions from 26.12 are seen as a sideway consolidation pattern from with decline 25.91 as the third leg. While break of 20.67 cannot be ruled out, strong support should be seen 19.88 and 20.67 to conclude the fall from 25.91, as well as the sideway pattern.

PBoC holds 1-yr and 5-yr LPR steady

People’s Bank of China announced today that it would maintain one-year loan prime rate at 3.45%, a level unchanged since August last year. Similarly, five-year rate, critical for mortgage financing, remains steady at 4.2%, consistent since its last reduction in June. This decision follows PBoC’s unexpected move last week to keep its medium-term lending facility rate stable.

PBoC’s decision to hold rates steady comes amid a sluggish economic environment in China, coupled with increasing deflationary pressures. Despite these challenges, the central bank appears reluctant to employ interest rate reductions as a tool to stimulate the economy, primarily due to concerns over the depreciating Yuan. PBoC might continue to avoid further rate cuts until Yuan regains some stability, to prevent exacerbating the currency’s depreciation.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 147.74; (P) 148.28; (R1) 148.71; More…

USD/JPY is extending the consolidation from 148.79 temporary top and intraday bias remains neutral. While deeper retreat cannot be ruled out, further rally is expected as long as 145.97 resistance turned support holds. Corrective fall from 151.89 should have completed at 140.25 already. Break of 148.79 will resume the rise from there for retesting 151.89/93 key resistance zone.

In the bigger picture, stronger than expected rebound from 140.25 dampened the original bearish review. Strong support from 55 W EMA (now at 141.89) is also a medium term bullish sign. Fall from 151.89 could be a correction to rise from 127.20 only. Decisive break of 151.89/93 will confirm resumption of long term up trend. This will now be the favored case as long as 140.25 support holds.