USD/JPY in a tight range after optimistic Japanese Tankan data

The USD/JPY is little changed today as forex investors reacted to the latest manufacturing and non-manufacturing index data from Japan. The numbers came a few days ahead of the final interest rate decision by the Bank of Japan (BOJ) of the year.

Japan business improves

The Japanese business conditions improved in the fourth quarter, according to the latest data by the Bank of Japan.

The data showed that the Tankan large manufacturers index improved from -27 to in Q3 to – 10 in Q4. That increase was better than the median estimate of -15.

The large non-manufacturers index increased from -12 to -5, which was also better than the estimated -increase to -11. The two indexes have been in the negative zone from the fourth quarter of 2019.

Meanwhile, the same trend happened in the small business sectors, which employ millions of people in Japan. The Tankan small manufacturing index rose from -44 to -27 while the non-manufacturers index rose from -22 to -12.

Bank of Japan decision ahead

The business conditions indices came a few days ahead of the final interest rate decision by the Bank of Japan (BOJ). In the Friday’s meeting, economists expect the bank to leave interest rates unchanged. Further, the bank will likely continue with its open-ended quantitative easing program.

This decision comes at a time when the Japanese yen has soared against the US dollar, putting Japan’s manufacturers at a disadvantage.

Also, it comes a week after the Japanese government launched a new stimulus package of about $700 billion. It hopes to use these funds to help support the economy and accelerate the recovery.

By leaving rates unchanged, the BOJ will not be alone. Last week, the European Central Bank left rates intact and increased the size of its quantitative easing program. The Bank of Canada also left rates intact.

USD/JPY technical analysis

On the daily chart, we see that the USD/JPY pair has been in a slow downward trend. It is trading at the psychological-important level of 104.00, which is between the descending black channel. Also, the pair is a few pips below the 25-day and 15-day moving averages while the Relative Strength Index (RSI) is at the neutral level of 42. Therefore, in the near term, the pair will likely remain in the current descending channel, with the key support and resistance being at 103.23 and 105.00.