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(M2) Corrective Cycle Still In Play


(M2) Corrective Bounce Extends

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The BoJ are preparing to deliver their first monetary policy decision of 2022 today, with a slew of recent press reports drawing attention to the meeting. Japan's central bank are not expected to alter any policy parameters today (see our preview for more colour on the matter), but any tweaks in language will provide interest amid talk of a potential change to policymakers' long-standing view on price risks. The measures of implied volatility in USD/JPY remain subdued across the curve, suggesting that market participants do not expect any big surprises.

  • In the meantime, Japanese headline flow is dominated by imminent virus containment measures, after several prefectural leaders asked the central government to tighten restrictions amid the ongoing spread of the Omicron variant. The government reportedly looks to implement stricter curbs in 11 prefectures including Tokyo, with PM Kishida set to sign off on the decision as soon as Wednesday.
  • The Premier launched a fresh parliamentary session on Monday with a policy speech, but his address was fairly thin in terms of substantive legislative proposals. Kishida provided a general outline of the government's Covid-19 strategy and pledged to unveil more details on his "New Capitalism" policy framework in spring. He pledged to review the requirement for companies to provide quarterly reports, but steered clear of revisiting his controversial market sensitive policy ideas, including a capital gains hike and restrictions on share buybacks, which had previously rattled Japanese equity markets.
  • A Doji candlestick charted last Friday suggested that the short-term downtrend in USD/JPY might be drawing to an end. The pair crept higher on Monday, with liquidity thinned out by a market holiday in the U.S. It last sits at Y114.60, little changed on the day.
  • Bulls need a clearance of the 20-EMA at Y114.76 before taking aim at Y115.68, which capped gains on Jan 11. Conversely, bears would be pleased by a dip through Jan 14 low/76.4% retracement of the Nov 30 - Jan 4 rally at Y113.49/43 before targeting Dec 17 low of Y113.14.
  • Domestic data highlights during the remainder of this week include final industrial output (today), trade balance (Thursday) and national CPI (Friday).
MNI London Bureau | +44 203-865-3806 |
MNI London Bureau | +44 203-865-3806 |

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