Global macro overview for 10/07/2017:
Bank of Japan Governor Haruhiko Kuroda maintains his upbeat view on Japanese economic outlook. The main focus of Kuroda is consumer prices and economic growth and at the opening of the BoJ quarterly branch managers' meeting he said: "The year-on-year rate of change in the CPI (all items less fresh food) is likely to continue on an uptrend and increase toward 2%, due mainly to an improvement in the output gap and a rise in medium- to long-term inflation expectations". Moreover, he is not only optimistic about CPI as he sees the whole Japanese economy is on the verge of turning toward a moderate expansion.
The latest data indicated that Japan's national average core CPI (excluding fresh food but including energy prices) increased 0.4% on a yearly basis in May and it was the fifth straight year-on-year rise after +0.3% in April and +0.2% in March. Nevertheless, the BoJ inflationary target was not met yet as it was set at the level of 2.0%, so in this situation, BoJ will continue expanding the monetary base until core CPI exceeds 2.0% and stays above the target in a stable manner. The policy adjustments will have an appropriate manner and they will take into account the overall developments in the Japanese economic activity, financial conditions, and prices.
The next BoJ meeting is scheduled on July 19-20 and during this meeting, the BoJ will update the medium-term growth projections, inflation projections and risk analysis. With the current data on focus, the BoJ is expected to lower its inflation forecasts below 2.0% and even possibly extend the time of achieving this lower target sometime in 2018. If the market participants will strat to price in such an outcome of the BoJ meeting, the Japanese Yen will be weakening further across the board.
Let's now take a look at the GBP/JPY technical picture at the H4 timeframe. The market is trading inside of an upwards channel, very close to the recent swing highs at the level of 148.07. There is a clear bearish divergence between the price and the momentum indicator, so a corrective pullback towards the next technical support at the level of 145.92 is currently expected.
