USD/JPY – Yen Softens as Japanese Household Spending Slides

The Japanese yen has reversed directions on Tuesday, as USD/JPY trades at the 113 line early in the North American session. In economic news, Japanese Household Spending dropped by 3.1 percent, below expectations. Today’s key event is US ISM Manufacturing PMI, with the markets expecting a weak reading of 48.5 points. On Wednesday, we’ll get a look at the US ADP Nonfarm Payrolls, with the official Nonfarm Payrolls report to follow on Friday.

Japanese consumer indicators have looked dismal this week. Retail Sales, the primary gauge of consumer spending, came in at -0.1%, marking a third straight decline. There was no relief from Household Spending, which posted a sharp drop of 3.1 percent, short of the forecast of a 2.5 percent decline. The indicator has now posted declines for five consecutive months. These weak figures underscore weak domestic demand, as nervous Japanese consumers are tightening the purse strings and cutting back on spending. At the same time, the Japanese yen enjoyed a superb February, surging over 7 percent against the US dollar. The yen has thrived despite poor economic conditions, thanks to its status as a safe-haven asset which has attracted investors looking to avoid risk. Given the limping Japanese economy, the BOJ may have to step in and take further monetary action at its next policy meeting later in the month. At the January meeting, the BOJ adopted negative interest rates, shocking the markets and sending the yen sharply lower before the currency rebounded. If the BoJ does take action at the next policy meeting, this would likely push the yen to lower levels.

The US economy has shown signs of softness in early 2016, and January reports from the housing sector are raising concerns. Housing Starts and Building Applications fell in January, and New Home Sales and Pending Sales followed suit, missing expectations. Activity in the housing sector is closely monitored by analysts, as a decrease in home building can have a negative impact on other sectors of the economy. The US manufacturing sector has also struggled, although recent durable goods order were much stronger than expected. The markets will next shift focus to the employment front, starting with the ADP Nonfarm Payrolls. The estimate stands at 185 thousand, much lower than the previous release of 205 thousand.

USD/JPY Fundamentals

Monday (February 29)

• 18:30 Japanese Household Spending. Estimate -2.5%. Actual -3.1%

Tuesday (March 1)

• 9:45 US Final Manufacturing PMI. Estimate 51.0 points
• 10:00 US ISM Manufacturing PMI. Estimate 48.5 points
• 10:00 US Construction Spending. Estimate 0.5%
• 10:00 US ISM Manufacturing Prices. Estimate 35.5 points
• All Day – US Total Vehicles. Estimate 17.6M
• 18:50 Japanese Monetary Base. Estimate 27.9%

Upcoming Key Events

Wednesday (March 2)

• 8:15 US ADP Non-Farm Employment Change. Estimate 185K

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Tuesday, March 1, 2016

USD/JPY March 1 at 9:10 EST

Open: 112.41 Low: 112.51 High: 113.34 Close: 113.04

USD/JPY Technical

• USD/JPY has posted gains in the Asian and European sessions. The pair is steady in the North American trade
• There is resistance at 113.86
• 112.48 remains a weak support line
• Current range: 112.48 to 113.86

Further levels in both directions:

• Below: 112.48, 111.50, 109.87 and 108.58
• Above: 113.86, 114.65 and 115.85

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged, with long positions retaining a strong majority (63%). This is indicative of strong trader bias towards the pair continuing to move higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.