BoJ preview: significant risks ahead for USD/JPY?

Currently, USD/JPY is trading at 113.67, down -0.03% on the day, having posted a daily high at 113.86 and low at 113.58.

Wall Street skids to a halt on major investor concerns over Trump's immigration controls

USD/JPY has been falling after failures through the 115 handle, breaking below key technical levels  where the 10 and 20 sma on the 4hr charts cross over at the mid-point of the 114 handle and now below 1hr 200 sma at 114.13 after a risk-off session in the US while Trump starts to concern investors. Wall Street was in the red in an exodus out of stocks due to the immigration ban of various Islamic countries that the Obama administration marked as a terror threat to the USA. 

The major risk event for the pair now stays with the BoJ: 

Analysts at Nomura explained that the Bank is likely to upgrade its economic outlook, but its dovish stance will likely remain intact. Governor Kuroda is unlikely to indicate any steps towards the Bank’s exit strategy, including the tapering of ETF purchases yet, which may be welcomed by equity investors," adding, "As market expectations for easing have declined and concerns about hawkish surprises are likely to exist, JPY may react negatively to Governor Kuroda’s likely dovish policy stance."

BoJ: Kuroda to suggest ETF purchase tapering as premature - Nomura

A full report can be viewed in the link above, but the analyst's conclusions are that although recent market expectations on the tapering of ETF purchases and the recent decision to skip a 1-5yr JGB purchase operation may have increased market expectations on hawkish surprises from the BOJ, they still believe Governor Kuroda is going to maintain his dovish stance: 

"The risk of a hawkish surprise is very limited. USD/JPY has been driven by US rates and concerns about US FX policy recently, and we do not see the BOJ meeting next week as a catalyst for significant movements in JPY. Nonetheless, the BOJ’s dovish stance should widen the rate differential between the US and Japan gradually, as the yield curve control policy is capping upside risk of JGB yields well. The likely dovish stance unveiled at next week’s meeting should be JPY negative gradually, in our view."

USD/JPY levels

USD/JPY spot is in neutral territory according to the hourly FXStreet OB/OS Index, while the FXStreet Trend Index is slightly bearish. Looking to a daily chart, we see that RSI is neutral at 51.88. However, analysts at Commerzbank argued, "We are unable to rule out a test of the 38.2% retracement at 111.98 area, we note that the recent move lower continues to indicate that this is the end of the corrective move. Only below 111.98 would trigger losses to the base of the cloud, which lies at 109.92 and, if seen, we look for this to hold (this is also the 50% retracement of the move up from November)."