Today's meeting of the Bank of Japan in the morning gave the USD/JPY pair an northern impulse. The pair got close to the 111th figure, but the bulls failed to enter and gain a foothold in this area. In general, despite the "dovish" rhetoric of the Japanese regulator, long positions on the pair look dangerous. Moreover, the impulse growth of the pair can be considered as an excuse for profitable selling, with an approximate target in the range of 109.90-108.80.
The Bank of Japan today once again confirmed its commitment to a soft monetary policy. The regulator predictably left the parameters of monetary policy in its previous form, and also lowered its estimate of inflation. According to this forecast, the basic consumer price index will fluctuate within 0.5% - 1%, while in January inflation expectations were raised to one percent.
The updated inflation forecast is fully consistent with the soft rhetoric of Haruhiko Kuroda. The head of the Bank of Japan said that the country's economy needs further stimulation, so there can be no question of tightening the terms of monetary policy. The approximate time frame for achieving the target inflation level is the next financial year (which begins in April 2019).
It is worth recalling that in April the core inflation slowed again, demonstrating the negative dynamics for the second month in a row. The consumer price index excluding the cost of fresh food products grew by only 0.7% year-on-year, although in March, growth was registered at 0.9%.
All this suggests that the Bank of Japan this year certainly will not consider the issue of normalizing monetary policy. Despite the gradual tightening of monetary policy conditions by the Central Banks of the United States, Europe, Canada and some other countries, the Japanese regulator is forced to maintain a soft position.
In general, this is not news for traders: Haruhiko Kuroda has been following a consistent policy for several years, and after his recent re-election, there have been no illusions about radical changes. Therefore, today's reaction of the USd/JPY pair is rather emotional because of a decrease in the inflation forecast. But here it is worth considering that the market was ready for the fact that within the framework of this year the regulator can change the monetary policy except in the direction of easing. Therefore, the forecasted forecasts should not greatly surprise traders, let alone determine the upward trend of the USD/JPY pair.
This means that on Monday the value of the June meeting of the Japanese Central Bank will come to naught and the yen will return to the "paws" of the external fundamental background. After all, do not forget that the yen is the currency of the "safe haven", and the dynamics of its growth are often determined by geopolitical factors. And geopolitical tensions are rising again.
The smoldering trade conflict between the US and China flared up with renewed vigor. As expected, after the diplomatic success of the White House (we are talking about a meeting with the leader of the DPRK), Donald Trump decided to launch a full-fledged trade war with the China. Just today, he approved new duties on imported goods from China worth a total of $50 billion - all in a list of over a thousand items.
Beijing's reaction did not take long: the Chinese said that all the agreements reached with Washington lost their validity. But last month the US Minister of Finance reported that the parties agreed to reduce the deficit of the balance of the US in relation to trade with the China and substantially increase the export of goods from the US to China. The dollar reacted to these news with significant growth, especially as the key economic indicators grew.
At the moment, the situation has returned to the starting point, only now the parties are not limited to intentions: the United States have moved from words to deeds. China's official statement says that Beijing is "forced to take retaliatory measures, although it does not seek to unleash a trade war."
All this suggests that the dollar has again appeared under pressure of uncertainty. Depending on how the future events develop, the dynamics of the USD/JPY pair will be determined. It is now difficult to talk about how the Chinese will resort to reciprocal measures. But I want to recall the events of half a year ago, when rumors began circulating in the market about China's slowing down purchases of US Treasury bonds. Then the dollar collapsed all over the market (in particular, USD/JPY fell from 112 to 109th figure), although there was no official confirmation of this information. This fact shows that Beijing has significant levers of influence and can apply them in the next round of confrontation with Washington.
Thus, long positions in the USD/JPY pair are now impractical and dangerous. At the moment, one can consider selling from current levels with the first goal of 109.90 - t- this is the middle line of the Bollinger Bands indicator on the daily chart, which coincides with the Tenkan-sen line of the Ichimoku Kinko Hyo indicator. If the price overcomes this level, then the pair is likely to fall further, to the next support level of 108.80 is the top line of the Kumo cloud on D1.
