USD/JPY Holds Support Ahead of Multiple Central Bank Meetings


Monetary policy will remain a major focal point this week in the wake of the much weaker than expected U.S. jobs report this past Friday. First and foremost, the small increase in nonfarm payrolls pretty much assured the markets that the FOMC won’t hike rates as soon as June, and will likely delay action until September at the earliest. Meanwhile, central bank meetings highlight this week. On tap are the BoE, BoJ, and the RBA. Though no changes are expected, there is risk for further easing from the RBA, but all are seen maintaining their current very accommodative posture.

The small 126k rise in U.S. March nonfarm payrolls disappointed, but didn’t really shock, as a number of factors had been pointing to downside risks, including signs of slowing Q1 growth, the weather, the bearish effect from falling energy prices, and the weakness seen in PMI surveys. Nevertheless, the gain was only half what was forecast, was the smallest increase since December 2013, and was the first sub 200k increase since February 2014.

The reaction in in the capital markets was immediate. US Stocks futures tumbled and treasuries yields moved sharply lower. The 10-year yield plunged to 1.84%, while the 2-year rate slid to 0.48%, both the lowest levels since early February.

In Japan, the BoJ meeting which is scheduled for Tuesday and Wednesday highlights an otherwise light calendar that has few key data on the docket. Policy is widely expected to remain unchanged. Governor Kuroda has indicated that things are progressing as expected, with no need for further stimulus for the time being. As for data, February preliminary January leading and coincident indices is scheduled for Monday and is expected post a 0.4% m/m decline for the former, after January’s 0.3% slip, while the latter should rise 2.2% m/m from 2/4% previously. March bank loans scheduled for Friday is expected to up 2.7% y/y from 2.5% in February.

The USD/JPY has been under pressure, as the dollar lost ground following the weak NFP report. Ahead of the BOJ announcement the currency pair has bounced near an upward sloping trend line near 109. Momentum remains negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory.

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