Global macro overview for 20/12/2017

A two-day meeting of the Bank of Japan (BoJ) ends on Thursday, December 21, in the early morning hours (around 4:00 am to 6:00 am GMT). The global investors assume BoJ will keep the interest rates unchanged (main rate: -0.1%, the target for 10-year bond yield: 0.0%). It might be too early for Japan to start talking about the normalization of monetary policy and the current soft attitude should be sustained. Although the Japanese economy is doing well, using the global economic outlook, the inflation outlook is still unstable. CPI inflation in October fell to 0.2% y/y from 0.7% in September. Core inflation (excluding fresh food prices) at 0.8% y/y is better, but inflationary pressure is temporarily boosting fuel prices. Without it, you can not see that the inflation target of 2.0% anytime soon, it was to be achieved quickly, which suggests that the BoJ will not start discussing the normalization of monetary policy before 2019.

This is why the global investors might be more interested in the press conference of the president Kuroda. In November during the conference in Zurich, Kuroda raised the subject of the "rate of retreat", which was perceived by some as a signal to prepare for the earlier normalization of politics. Now the president of BoJ will have opportunities to develop this and explain what he had in mind at the time. However, Kuroda might exclude discussion about the imminent departure from the ultra-loose policy. The global investors should be assured that in the opinion of the BoJ monetary policy does not harm the financial sector and they can not see the negative effects of the policy of low-interest rates.

Let's now take a look at the USD/JPY technical picture at the H4 time frame. The market has managed to break out above the 61% Fibo at the level of 113.08 and now is testing the technical resistance at the level of 113.23. The momentum is increasing, but in order to confirm the further strength, the bulls must break out above the golden trend line resistance and above the technical resistance at the level of 113.74.

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