USD/JPY Forecast: Break below 110.00 likely as Kuroda sets 1.5% as a trigger for policy change

The USD/JPY looks set to break below 110.00 levels soon after the Bank of Japan (BOJ) governor Kuroda set 1.5 percent inflation rate as a trigger for change in the current monetary policy.

1.5 percent inflation target a trigger for policy change

As per Reuters report, BOJ Governor Haruhiko Kuroda at his post-meeting news conference said-

"Japan’s economy is expanding moderately but inflation remains weak. Other countries are facing similar situations, but unlike these countries, many of whom are seeing inflation move around 1.5 percent, inflation excluding energy costs is barely above zero percent in Japan"

Kuroda's comment indirectly says that policymakers would start telegraphing a change in the monetary policy once inflation nears 1.5 percent. So, the new trigger has been brought down/revised lower to 1.5 percent from 2.0 percent.

Hence, the Yen is likely to price-in the drop (from 2% to 1.5%) in the trigger for policy change.

Change in language on inflation could boost Yen

"Inflation expectations are moving sideways recently",  the BOJ said in its quarterly report compared to the previous report, which talked about the weakness in inflation expectations.

The change in language on inflation expectations and the downward revision of the trigger for policy change is likely being read as hawkish development, indicates the decline in USD/JPY from 111.18 to 110.70 in the last two hours.

Further, the technical setup favors downside, hence, the spot looks set to explore sub-110.00 levels soon.

4-hour chart

• The above chart shows a symmetrical triangle pattern.

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• A downside break of the symmetrical triangle looks likely, courtesy of the above discussed macro/fundamental factors. Such a move would signal continuation of the sell-off from the high of 113.386 and open doors for a sell-off to 108.72 (50% Fib R of 98.787-118.662).
• Bullish scenario - An upside break of the symmetrical triangle pattern could yield a move to 111.48 (Jan. 19 high).