07.06.202314:10 Forex Analysis & Reviews: USD/JPY: ahead of BOJ and Fed meetings

The start of today's American trading session is expected to be extremely "turbulent," especially in the quotes of the Canadian dollar and the USD/CAD pair, as the Bank of Canada will announce its decision on the interest rate at 14:00 (GMT).

At the end of today's trading day (effectively the beginning of tomorrow and the Asian trading session), the Cabinet of Ministers of Japan will present its report on the country's gross domestic product (GDP). This is a key macroeconomic indicator and the broadest measure of economic activity and the overall state of the economy.

In the previous fourth quarter, the country's GDP grew by 0% (+0.1% year-on-year) after a decrease of -0.2% (-0.8% year-on-year) in the third quarter, a growth of +0.9% (+3.5% year-on-year) in the second quarter, and a decline of -0.1% (-0.5% year-on-year) in the first quarter of 2022. These data indicate the uneven recovery of the Japanese economy after its downturn due to the coronavirus pandemic in 2020. Now, this process is further complicated by the highest geopolitical tensions in the world, including in the Asia-Pacific region due to events surrounding Taiwan and North Korea.

Together with the Chinese economy, the Japanese economy is one of the main leaders among the world's largest economies, and global geopolitical tensions, as well as rapid inflation primarily due to rising energy prices, have the most negative impact on the Japanese economy.

According to preliminary estimates, Japanese GDP still grew by +0.4% (+1.6% year-on-year) in the first quarter of this year, which, in the current conditions, is still an achievement for the Japanese economy, especially considering the sliding European economy into recession and the lingering risks of recession in the American economy.

At 23:50 (GMT), the final estimate of the GDP will be published. The final release suggests that in the first quarter of 2023, Japan's GDP grew by +0.5% and +1.9% year-on-year, which is better than the initial estimate and previous values, and is a positive factor for both the yen and the Japanese stock market (a growing trend in the GDP indicator is considered a positive factor for the national currency).

Nevertheless, the yen remains weak, considering, among other things, the ultra-loose credit and monetary policy of the Bank of Japan. Its next meeting on credit and monetary policy issues will be held next week.

The BoJ's decision on the interest rate will be published next Friday at the beginning of the Asian trading session. The central bank is pursuing an ultra-loose credit and monetary policy, maintaining the main interest rate in negative territory. Most likely, the rate will remain at the current level of -0.1%, and during a press conference, the Governor of the Bank of Japan, Kazuo Ueda, will provide comments on the bank's credit and monetary policy. As the former head of the bank, Haruhiko Kuroda, repeatedly stated, "It is appropriate for Japan to patiently continue its current accommodative monetary policy."

Ueda has recently stated that the central bank wants to avoid sudden normalization of monetary policy, as it will have a significant impact on the markets. According to him, the bank "fully realizes that the global economy is slowing down, and further slowdown is expected," but "positive signs are emerging in prices."

At the same time, Ueda confirmed that "the Bank of Japan will maintain the current easing of its monetary policy." Therefore, most likely, there will be no surprises or unexpected decisions from the leadership of the Bank of Japan: the interest rate is highly likely to be kept at the current level of -0.1%, as well as the volumes of Japanese government bond purchases and the parameters of yield curve control.

As for the USD/JPY pair, it continues to move within upward channels on daily and weekly charts, in the bull market zone—medium-term, long-term, and global, making long positions in the pair preferable.

The dynamics of USD/JPY are also influenced, among other things, by the statuses of safe-haven assets such as the yen and the dollar (under certain circumstances). And very often the USD/JPY pair moves according to its own algorithm, different from the dynamics of other major dollar pairs, which should also be taken into account when planning one's trading strategy in each specific case.

Next week, the U.S. and the eurozone central banks will also hold their meetings, but we will discuss them in our upcoming reviews.