Cautiously Optimistic

Speaking at a parliamentary conference overnight, the governor of the Bank of Japan, Haruhiko Kuroda, told Japanese MPs that he was cautiously optimistic on the domestic economic outlook.

At the conference, Kuroda (who is set to become the BOJ’s longest standing governor) said: "While Japan's economy remains in a severe state due to the pandemic's impact, it is picking up as a trend." The BOJ chief went on to say: As a whole, the recovery is being sustained as business sentiment improves for three straight quarters."

Fourth Wave Under Way

Despite an improvement in virus stats throughout the end of last year, Japan is now being gripped by a fourth wave of the virus as new infections begin to climb again. The nation has also struggled with its vaccination programme having started the operation a little later than other countries and suffering a slower rollout. This week, news of the pause in the supply of the Johnson & Johnson vaccine has also added to these concerns.

Warning Over Downside Risks

While Japan has fared a lot better than many western countries in terms of handling the virus, the country has still seen its economy ravaged by lockdowns and social distancing measures.

Looking ahead, despite Kuroda’s optimism in the economic recovery he was clear in warning that “downside risks remain high”. These remarks come as fresh restrictions have been placed on certain regions of the country amidst the outbreak of the fourth wave such as the key cities of Tokyo and Osaka. With virus fears rising again, JPY has been gaining from safe haven flows, leading it higher against the Dollar.

BOJ Criticised Over Easing

As a result of the damage caused by the pandemic, the BOJ was forced to unveil a fresh wave of easing over the last year, including a huge package of monthly ETF purchases. However, these purchases have drawn a lot of criticism with the BOJ facing accusations of distorting the market.

The BOJ has also faced accusations of funding the government’s huge fiscal stimulus via its bond purchase programme. However, Kuroda has been clear in downplaying these criticisms and has said that the BOJ will “patiently” maintain its easing procedures in a bid to drive inflation back up to 2%.

Technical Views

USDJPY

Following a brief move above the bearish trend line from 2018 highs, UDJPY has run into selling pressure and since reversed sharply lower. The decline has taken price back below the 109.86 level with the pair now quickly approaching the 108.39 level support. While this level holds there is still room for bulls to take price higher again. However, a break lower there will see bears targeting a return to 107.11 next.

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