USD/JPY keeps gains above 110.00 ahead of BOJ

• USD/JPY stays beyond 110.00 for the third consecutive day.
• Broad US dollar strength, downbeat Japan data and expectations of no change in BOJ’s monetary policy keep the pair light.
• IMF’s expectations of a modest recovery in 2020, optimism spread through the US superseded the geopolitical tensions from the Middle East.

USD/JPY trades near 110.17 at the start of the Asian session on Tuesday. The pair remains above 110.00 ever since it crossed the mark since late January 16. The US markets were off on Monday and a lack of major catalysts elsewhere, except for Japanese Industrial Production and noises surrounding, kept the pair little changed the previous day. Traders are looking towards the Bank of Japan’s (BOJ) monetary policy meeting for fresh direction.

The Middle East failed to defy risk-tone, IMF expects recovery…

The weekend news from Libya and Iraq, which did offer a week-start gap-up to oil prices, failed to hurt the market’s trading sentiment as the International Monetary Fund’s (IMF) latest projections show recovery in 2020. Even so, the global lender cut its growth forecast by 0.1% point in both 2019 and 2020 to 2.9% and 3.3% respectively and by 0.2% points in 2021 to 3.4%.

It should also be noted that the US off and overall optimism surrounding the world’s largest economy, backed by the recent data, also helped the traders’ fraternity to remain optimistic.

As a result, the S&P 500 Futures and 10-year bund yields were mildly positive by the press time.

BOJ to stand pat, Q4 Outlook Report and Governor's press conference in focus…

While the BOJ is less likely to deviate from its path of ultra-loose monetary policy, the Japanese central bank’s outlook report for the fourth quarter (Q4) will be watched closely to reconfirm the dovish bias. Following that, Governor Haruhiko Kuroda will also hold a press conference and might reiterate his support for the easy money.

However, Reuters Poll suggests that the BOJ’s next is likely to be the tapering of its massive stimulus as the report said, “the 41 economists polled by Reuters Jan. 6-17, 24 said the BOJ's negative rate policy did not help the economy and prices, while 17 said they did.”

In addition to the BOJ markets will also keep eyes on the trade/political headlines for fresh clues as well as how the US traders will respond to the weekend news. Libyan Gen Khalifa Haftar ignores global pressure for peace and keeps the country’s east coast off the oil supply zone. Elsewhere, the UK Telegraph said that the US and Britain to 'reduce troops' in Iraq under the plan to defuse regional tensions. Furthermore, the US-China phase-two deal talks are also less likely to grab the spotlight, for now, as the Chinese side needs time to consider the impact of a trade deal before going ahead for the second round.

Technical Analysis

FXStreet’s Chief Analyst Valeria Bednarik holds a mildly upbeat view for the pair depending upon the quote sustained trading near multi-month high:

The USD/JPY pair is in a consolidative phase, although the fact that it holds near multi-month highs maintains the risk skewed to the upside. In the 4-hour chart, the 20 SMA maintains a moderated bullish slope just below the current level, providing dynamic support and far above the larger ones. Technical indicators, in the meantime, remain flat, the Momentum around its 100 level and the RSI at around 70.

Support levels: 110.00 109.70 109.35  

Resistance levels: 110.40 110.75 111.05