According to the Bank of Japan President Katsou Ueda, the higher inflation is caused by the rising commodity price, not the demand-based factors. His opinion suggests that the bank would retain the easy policy as the higher inflation had not become ingrained enough.
BOJ's Outlook Suggests A Pivot Is Coming
In the future projection, the Bank of Japan expects inflation to rise steadily to 2.8% in fiscal years 2023 and 2024, indicating that it is anticipated to remain above the target throughout fiscal year 2024. Intriguingly, the Bank appears to be signaling to the market that it considers the present high inflation temporary, as evidenced by the forecast for fiscal year 2025 of less than 2% inflation.
The Bank of Japan took the loosening Yield curve as a hawkish move. The YCC on 10-year Japanese bonds is expected to remain between 0.0% to 1.0%. Currently, the JGB is trading at 0.94%, increasing a bit from the news.
The Bank of Japan may abandon its Yield Curve Control (YCC) policy in the next policy meeting. Global bond market trends will heavily influence this decision. By then, it is anticipated that market interest rates will align with movements in the U.S.
Based on this outlook, analysts forecasted that the central bank will raise interest rates for the first time in the second quarter of the following year. The forecast is premised on the Bank of Japan's action to achieve sustainable inflation, the closing of negative output gaps, and the emergence of robust wage growth.
Canadian GDP Shows An Economic Stability
In August, real gross domestic product (GDP) remained stable for the second consecutive month, influenced by factors like higher interest rates, inflation, forest fires, and drought conditions.
Services-producing industries saw a marginal 0.1% increase, while goods-producing industries contracted by 0.2%. Among the 20 industrial sectors, 8 experienced growth.
An advance estimate for September suggests that real GDP remained essentially unchanged. The third quarter of 2023 is also expected to show stable economic performance. Official data for the third quarter will be released on November 30, 2023.
CADJPY Technical Analysis
In the daily chart of CAD JPY, the broader market trend is bullish, where the most recent price shows a bullish rejection from the 107.45 support level.
Following the BoJ outlook, bulls joined the market and made a steady bullish candle above the dynamic 20-day EMA. Although the latest price action failed to overcome the triangle resistance, it came with a pre-breakout possibility.
Based on the daily market outlook of CAD/JPY, a minor bearish correction could offer a long opportunity targeting the 111.16 resistance level. However, the bullish possibility is potent as long as the price remains above the 107.45 support level.
On the other hand, a false break from the dynamic 20 EMA resistance with an immediate bearish recovery could offer a short-term bearish opportunity, but a break below the 107.40 would initiate a long-term bearish trend.