Japan’s consumer prices fell for the fifth consecutive month, yet bad news failed to revive the Bank of Japan (BoJ) doves. The yen traded range-bound near the 100 level against the US dollar, while Nikkei and Topix stocks lost 1.18% and 1.26% respectively. The market is being tough to the BoJ regarding its capacity to further loosen its monetary policy, or stay loose. Although the pool of sovereign bonds in Japan is drying up, the BoJ’s shift toward alternative asset classes, as the ETFs, somewhat didn’t satisfy the market expectations.

The monetary game in Japan has become very challenging given that the BoJ has gradually lost credibility and support from the market. It is time for the BoJ to surprise the insatiable market, yet Mr. Kuroda is running out of resources.

In the dirt of further visibility regarding Japan’s monetary policy outlook, we should not rule out a potential slide in the USDJPY below the 100 level. Nevertheless, both the BoJ and the government are too implied in the yen’s value. Therefore, despite the little maneuver margin in terms of fiscal and monetary policies, the upside risks in the USDJPY prevail, especially for a renewed attempt below the 100 level.

USDJPY: Golden cross alert on an hourly basis

The USDJPY’s trading range progressively narrowed over the past month. The 50-hour moving average has crossed above the 200-hour moving average (golden cross) for the first time in a month. The technical picture is suitable for a bullish breakout towards 100.58, the major 38.2% retracement on August 12 – 16 sell-off.

Written by Ipek Ozkardeskaya from London Capital Group