Global macro overview for 16/06/2017

Global macro overview for 16/06/2017:

The Bank of Japan decided overnight to leave the interest rate unchanged at the level of -0.1% after a two-day meeting. This decision was in line with market expectations. Importantly, the negative short-term key deposit rate at -0.1% has not been changed since the beginning of 2016. Moreover, the policymakers voted to maintain their purchase of Japanese government bonds so that the 10-year JGB yield remains at zero percent and the amount of the purchase has been confirmed again at the level of 80 trillion Yen annually.

At the press conference, BoJ Governor Kuroda said, that Japanese economy is growing well, but inflation is still not picking up as projected. Nevertheless, if the economy goes on with its expansion, the output gap will shrink and that process will have an impact on inflation. Currently, BoJ is not ready to start discussing exit strategy with inflation at the present levels. Moreover, he added that it is wrong to link shrinking population and consumer prices as other nations have shrinking population as well, but not deflation. At the end, he added that short-term rate and balance sheet will be in focus when BoJ will start normalizing monetary policy again.

In conclusion, not much guidance for the financial markets was prepared by Kuroda, but the overall statements during the press conference can be viewed as dovish. It is worth to point out, that BoJ has been able to keep rates steady even as US rates rose, but it might be the right time to start to talk about the beginning of the policy normalization on the back of developments in the US, the UK, and the Eurozone. If any of other global central banks start to hike interest rates, the BoJ will have no choice, but to join them. This move will have a massive consequences for the Japanese yen.

Let's now take a look at the USD/JPY technical picture on the H4 time frame. After the FED interest rate decision, the pair is rallying after the golden trend line violation and is currently trading just below the technical resistance at the level of 111.70. The market conditions are slightly overbought and the next technical support is seen at the level of 110.81.