USD/JPY AND POLITICS
FX market today was dominated by politics and expectations of Trump's tax reform plans, that only let the market down when announced despite sounding pretty good news for the US economy overall. A number of the reforms were expected already and some of the benefits were priced into the dollar already and indeed stock prices. However, on the announcements, stocks came off as did the dollar and US yields. The USD/JPY pair advanced to its highest for this April (111.77 level) but later give up after the US government announcement on the tax reform. According to analysts, The Bank of Japan is expected to maintain the status quo unchanged ( BOJ will have its monthly monetary policy meeting during the upcoming Asian session). USD/JPY remains closely correlated to US Treasury yields, which have been volatile in recent weeks. Some analysts predict for the JPY to continue to appreciate, towards 108 by end-2017. The USD/JPY needs to advance above 112.00 level to be able to extend its advance towards the 113.00 level.
The US Dollar also came under some renewed selling pressure after a weak CPI report and softer retail sales data (this could have an impact on FED). Inflation fell more than expected and came-in to show a decline of 0.3% during March. Meanwhile, the core CPI also unexpectedly eased to 2.0% y-o-y, clearly suggesting that the inflationary pressure in the US economy has started easing. The US economy added 98,000 new jobs in March, marking the smallest gain in almost a year. According to some analysts this is a disappointing jobs report coming in well below consensus (This is not my opinion, the unemployment rate fell to 4.5% from 4.7%—the lowest level in almost 10 years). The Federal Reserve has begun to move its policy interest rate target faster. Fed officials moved the target federal funds range in the middle of December 2016 and then made another move in the middle of March 2017. After the March meeting, the target range was 0.75 percent to 1.00 percent. The "forward guidance" provided by Fed officials is for two more moves to take place this year. The projections for the federal funds rate released by the Federal Open Market Committee is as follows: the average rate projected for 2017 is 1.4 percent; for 2018 is 2.1 percent, and for 2019 it is 3.0 percent.
Support levels might be located around 110.00 level. On the upside, resistance might be seen around 111.60/112.00. For now, USD/JPY is more "BEARISH" and as long as the price remains below 112.00, chances of an upward move will be well-limited, while a break below 111.00 exposes the pair to a continued decline towards 110.00. The USD/JPY needs to advance above 112.00 level to be able to extend its advance towards the 113.00 level.USD/JPY - For now, USD/JPY is more "BEARISH"