Japan has had negative interest rates for four years. The overnight call rate set by the Bank of Japan was cut from 0.1% to -0.1% in February 2016. It has not moved since. Japan has had ultra-low rates for more than two decades. The BoJ reduced the overnight call rate to 0.5% in September 1995. It has not been above that level in the subsequent 24 years. If there were one place for 21st-century central bankers to look for the economic efficacy of very low-interest rates it should be Japan. But Japan is rarely mentioned in polite economic society.
USD/JPY drops to two-week lows near 109.30
The USD/JPY pair reversed its direction during the American trading hours as the risk-off atmosphere allowed the JPY to find demand as a safe-haven.
Latest USDJPY News
With the reversal lower from 109.58, the pair has established another lower high on the hourly chart. So, a re-test of Thursday's low of 109.27 cannot be ruled out.
Weekly close pivotal
The pair is currently trading below the 100-week average at 109.66. The bulls failed to secure a weekly close above that average at least six times during the two months to the second week of January.
The pair scaled the 100-week average last week, confirming a bullish breakout or a continuation of the rally from the low of 104.45 seen in August.
So far, however, the follow-through has been dismal, as evidenced by the pair's drop below the key average.
If the pair closes below the 100-week average of 109.66 on Friday, the bullish breakout would fail. A failed breakout would imply bearish reversal and open the doors for a deeper drop to 107.65 (January low).
Japan's core consumer price index (CPI) rose 0.7% in December from a year earlier following November's 0.5% rise. The headline CPI rose 0.8%, bettering the forecast of 0.4% by a big margin.
The inflation data was released at 23:30 GMT, but so far has done little to strengthen the bid tone around yen.
After all, inflation remained well away from the central bank’s elusive 2% target despite the acceleration from the previous month.
BOJ minutes reiterate easing bias
Bank of Japan's (BOJ) December monetary policy meeting minutes released a few minutes before press time reiterated easing bias.
Most members agreed it is appropriate to continue easing consistently, minutes said. The central bank has been running an ultra-easy policy for more nearly seven years and its easing bias has been priced in long ago.
Yen may gain ground on virus scare
The Japanese yen may find love, helping the pair reverse the bounce from 109.26 to 109.53 if the equities remain risk-averse on coronavirus scare. As of Jan. 23, there were 830 confirmed cases in China. The futures on the S&P 500 are currently reporting marginal gains.
THEMES AFFECTING THE USD/JPY
SPECIAL USDJPY YEARLY FORECAST
“Bye bye bye” – N-Sync’s greatest hit from the 1990s can be used to say farewell’s the 21st century’s second decade. The global economy is in-sync once again – but political uncertainty remains elevated and will likely be enhanced in 2020. 2019 was dominated by trade talks as the primary driver for the safe-haven Japanese yen while the Federal Reserve’s shift from raising rates to cutting them weighed on the US dollar. Nevertheless, brighter prospects for the US economy – despite external headwinds – kept the currency pair in check.