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USDJPY-Capped-By-Former-Support--Upbeat-BoJ-Risks-Larger-Decline_body_Picture_5.png, USD/JPY Capped By Former Support- Upbeat BoJ Risks Larger Decline

Fundamental Forecast for Japanese Yen: Neutral

The USDJPY pulled back from a fresh monthly high of 104.11 as the weaker-than-expected U.S. Non-Farm Payrolls report dragged on the dollar, and the pair may face a larger decline in the week ahead should the Bank of Japan (BoJ) continue to scale back its willingness to further expand its asset-purchase program.

Indeed, the BoJ is widely expected to preserve its current policy at the April 8 meeting as Governor Haruhiko Kuroda retains an upbeat tone for the Japanese economy, and the board may continue to endorse a neutral policy stance for the foreseeable future as a growing number of central bank officials see scope to achieve the 2% target for inflation as early as the end of FY 2014. With that said, we may see Governor Kuroda merely reiterate the policy statement from the March 10 interest rate decision, and the Yen may benefit from a less-dovish BoJ as market participants scale back bets for additional monetary support.

At the same time, it seems as though the value-added tax (VAT) will have a limited impact on the BoJ’s policy stance as Governor Kuroda continues to see a moderate recovery in Japan, and the central bank head may even sounds more hawkish this time around as the VAT raises the outlook for price growth. In turn, a more material shift in the policy outlook may highlight an improved outlook for the Japanese Yen, while a further decline in trader sentiment may also generate greater demand for the low-yielding currency as it benefits from risk aversion.

As a result, the USD/JPY may continue to give back the rebound from the end of March as former support (104.00 pivot to 104.15 38.2% Fibonacci expansion) now acts as resistance, and the pair may ultimately make another run at the 101.00 handle in April should the BoJ see scope to halt its easing cycle sooner rather than later. - DS