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Japanese Yen Remains Supported ahead of BOJ Statement

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Japanese Yen Remains Supported ahead of BOJ Statement

The USDJPY declined for the third consecutive day, as mixed US data kept the pair under pressure ahead of a key rate statement from the Bank of Japan.

The USDJPY has weakened every day this week. On Thursday the pair tumbled 0.33 percent to 101.68, rebounding from an intraday low of 101.64. The trend line shows initial support at 101.56 and resistance at 102.37. A fall below initial support would put the USDJPY below the 200-day simple moving average.

The greenback has weakened 0.9 percent against its Japanese counterpart this week.

In economic data, US retail sales advanced 0.3 percent in May, half the rate expected by the consensus. Retail revenues in April were revised upward to 0.5 percent.

Excluding automobiles, retail revenues increased only 0.1 percent, falling short of estimates calling for 0.4 percent.

Business inventories advanced 0.6 percent in April, supporting the view GDP growth will accelerate rapidly in the second quarter. The US economy is on pace to expand 3 percent annually between April and June, according to analysts. Gross domestic product contracted 1 percent annually between January and March, the Commerce Department confirmed last month.

The Bank of Japan will issue a rate statement Friday. The prevailing sentiment is that BOJ officials will downplay the need for further stimulus measures at this time. A benign reading Friday could place more downward pressure on the USD/JPY, sending the pair below the 200-day average.

The BOJ voted unanimously at last month’s meetings to keep the interest rate at 0.1 percent. No change to the benchmark lending rate is expected Friday.

The Japanese economy expanded 6.7 percent annually in the first quarter, according to a revised estimate released by the Cabinet Office earlier this week. The initial estimate said Japan’s economy grew 5.9 percent annually in the first quarter.

Quarter-on-quarter, Japan’s GDP accelerated 1.6 percent in Q1, official data confirmed.

The global financial markets were encouraged by the sharp rise in business investment that occurred in the first quarter. Capital investment surged 34.2 percent in the first three months of the year, up from an initial estimate of 21 percent.

Japan’s economy is forecast to contract around 4 percent in the second quarter.

The focus of the BOJ, therefore, is to determine how quickly the Japanese economy can regain its footing in the second half of the year. Officials have not yet committed to adding additional stimulus on top of the 60 to 70 trillion yen per year they have already committed.

Under the pro-growth policies of Prime Minister Shinzo Abe, the BOJ has committed to doubling Japan’s monetary base in less than two years in an effort to combat stagnation. The BOJ boldly forecasts inflation to rise to 1.9 percent in the fiscal year ending March 2016. This target has created some dissention among the BOJ ranks.

Central bank board member Takehiro Sato has already suggested the bank revisit its price targets. Other BOJ members have repeatedly called for changes to the BOJ’s timeframe for when it expects to achieve its inflation target.

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