The USD/JPY gapped lower to open the week but was supported after Abe expressed willingness to bring stability to financial markets in an emergency meeting held ahead of the Tokyo open. The Nikkei 225 index managed to rally for a 2.39% gain on the day. The Japanese Yen had already fallen ahead of the meeting at the weekly open but managed to limit losses following the meeting.
Governor Kuroda was said to be in Basel, Switzerland attending a meeting of central bank governors from 30 major countries, following the volatile movements seen in the financial markets in the aftermath of the EU referendum. Central banks around the world are looking to work together to provide stability in the markets, as the path ahead for Brexit continues to carry uncertainty.
In addition to the statement issued by Abe’s office today, there remains speculation that the BoJ will look to increase easing measures in July.
USD/JPY spike to 99.00 as votes from the UK had started to indicate a leave vote would be most probable. The psychological 100 level in the USD/JPY continues to be protected in the pair. A 50% Fibonacci level as measured from 2015 lows falls at 100.78, and although the exchange rate has spiked below it, it has not made an hourly close below the figure.
The pair has managed to limit losses on the day, despite a broader continued theme of risk aversion in European trading. Technicals have not given any indication of a reversal as of yet, despite speculation that the 100 level could be a longer term bottom in the pair. Resistance found at 103.73 reflecting a spike highs from June 2013 highs will be the first hurdle for the pair, followed by the highest daily close in 2014 at 105.19. The pair will need to see a close above these figures on a larger time frame to encourage longer term speculators to step in and re-establish short position on the Yen.
Correlations with the equity markets suggest the pair could continue lower. European markets have shown a break lower following the referendum, while the Nikkei remains below critical resistance, and posted a broken flag pattern two weeks ago. The broader trend in the Nikkei shows a downtrend from mid-2015, similar to the USD/JPY. Divergence has been seen as the index posted its low for the year in February, while the USD/JPY has continued to decline since then. The February low in the Nikkei will be critical support, and a break lower can trigger further selling in the USD/JPY.