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BoJ Governor Kuroda said they may have to pursue aggressive easing policy for some time and still feels the 2% inflation target is achievable.
The important point here is this shuts down the sceptics who were beginning to feel the BoJ has done all it could. These comments are a game changer as they suggest that, if data shows further signs of slack this week, we could see additional stimulus being priced in.
Developments from the weekend have also prompted USD/JPY higher – it’s now trading at its highest level since January 2013. Additionally, this week is fairly significant for Japan as we receive a raft of data on Friday. We’ll get the latest reads on inflation, employment, industrial production, retail sales and housing starts.
Any signs the BoJ is drifting away from its goals will most likely ignite calls for further stimulus. Inflation will be especially vulnerable once the impact of the sales tax hike wears off.
Having said this, I will be looking to buy the dips in the Nikkei in anticipation of further strength. Price-action-wise, dips into 15,500 would be where I prefer going long. Once triggered, I would look to place stops just under 15,400 – which is where the 61.8% retracement of the drop from the January 2014 high to the low printed in April.
As a result, I feel there could be some support through this region and would therefore place a stop at 15,350. Target-wise, I will initially target 15,788 – the point where the July highs were.