The immigration imbroglio in the United States is being cited in various accounts for the price action, including yesterday’s drop in the S&P 500, where the intraday loss was the largest since before the election. The drama is also being blamed for the dollar’s losses yesterday, which it is consolidating today. We are a bit skeptical. The transmission mechanism is not articulated. One may object to the executive order and the way it is being enforced, but it is not obvious how that impacts expectations of future returns.  

On the contrary, we suggest the price action can be explained without resorting to the US immigration stance.  And at the end of the day, neither the dollar nor US interest rates moved outside of recent ranges. The S&P 500 and the Nasdaq gapped higher in the middle of last week and gapped lower yesterday. The potential three-day island top is seen as a bearish technical development, but after the initial losses, equity prices slowly recovered nearly half of the losses. Yesterday’s gap is found between roughly 2286.0-2291.60.

The Bank of Japan left policy on hold, as widely anticipated. And as expected, it lifted its assessment for GDP. Growth in the current fiscal year was lifted to 1.4% from 1.0%. GDP for FY17 beginning April 1 was raised to 1.5% from 1.3%, and for FY18, the forecast was raised to 1.1% from 0.9%. The inflation forecast for the current fiscal year was trimmed to -0.2% from -0.1%.Inflation forecasts for the next two fiscal years were kept at 1.5% and 1.7% respectively.  

The dollar remains well within the recent range marked by a double top in the JPY115.40-JPY115.60 area and a double bottom near JPY112.50. Within that range, the JPY114.00-JPY114.10 offers initial resistance. The JPY113.50 area that we had thought was support penetrated in early Asia but continues to deter dollar losses.