USD/ JPY – Punches Above 95 After Weak Japanese GDP Data

The Japanese yen lost ground in Friday’s Asian session. USD/JPY pushed above the 95 level, yet another multi-year high for the pair. The upward move is continuing in the European session, as the pair trades in the 95.70 range. The last time the pair was at these levels was back in August 2009. The yen took a hit after a weak Japanese Final GDP  release. Japanese Current Account beat the estimate, but this didn’t help the struggling yen. In the US, the markets are hoping that employment data continues to look sharp. There are two major releases scheduled – Unemployment Claims and Non-Farm Employment Change.

The yen continues to slump, as it drops to new lows against the US dollar. The Japanese currency has dropped close to 100 points in Friday trading, and is closing in on the 96 line. The catalyst for today’s slump was Japanese Final GDP, which came in at a disappointing 0.0%, underscoring the lack of growth in the Japanese economy. The estimate was a notch lower, at -0.1%. Final GDP Price Index declined 0.7%, slightly more than the estimate of a 0.6% decline. Japanese Current Account was better than expected, rising to JPY0.36 trillion, easily beating the estimate of JPY 0.11T. Bank Lending gained 1.5%. Economy Watchers Sentiment rose nicely, to 53.2 points. It was the first time the indicator was above the 50-point level since May 2012.

The Bank of Japan had no surprises up its sleeve, as it maintained interest rate and QE levels at a policy meeting earlier this week. The benchmark rate remained at 0%-0.10%, while the size of the central bank’s asset purchase remained unchanged at JPY76 trillion. This policy meeting was the final one presided by governor Masaaki Shirakawa, who will be replaced by incoming governor Haruhiko Kuroda. The new governor is a proponent of strong monetary measures to kick-start the economy, and has suggested that the central bank consider purchasing more Japanese government bonds. Some analysts feel that this could cause a market bubble, with one expert warning that the BOJ’s options are limited, and that Kuroda will face a “wall of reality” when he takes the helm of the BOJ later this month. Regarding inflation, Kuroda said that the BOJ’s current policies were not strong enough to boost inflation to the government’s target of 2%. Kuroda suggested that the BOJ consider commencing its open-ended asset purchases before the scheduled start of 2014. He took pains to note that the BOJ is not targeting the yen, which has lost 12% of its value against the dollar in the past 3 months, much to the dismay and unease of Japan’s trading partners.

There was little surprise on Thursday, as the ECB voted to maintain the benchmark interest rate at 0.75%. Although the markets expected the rate to remain steady, and ECB head Mario Draghi didn’t have anything new to share at the ECB press conference, the markets were pleased, and the euro took advantage, gaining a cent against the dollar. Draghi once again reminded us that, yes, the Eurozone economy is having a tough go of it, but things will improve later in the year. Draghi also reassured his listeners that the crisis in Italy would not spread, but did call on member countries to implement needed structural reforms, in what could be seen as a hint to Italy to continue with its austerity measures in order to get its economy headed in the right directions. The ECB’s decision to maintain rates was not unanimous, as some policymakers wanted to lower rates. Given the lackluster performance of the Eurozone, with the notable exception of Germany, the ECB could well step in and lower rates if the Eurozone economy fails to turn around.

The US economy has posted some solid data recently, and this has raised speculation as to whether the Fed might wind up its current round of QE, which involves the purchase of $85 billion in assets each month. Although Fed Chair Bernard Bernanke and Vice-Chair Janet Yellen have stated that QE will continue, signs of a stronger recovery would put pressure on the Fed to consider winding up or modifying the current asset purchase program. Employment numbers have been sharp this week, and if we see a drop in the Unemployment Rate of Friday, this would be further evidence that the recovery is gaining traction, and the Fed will face more pressure to wind down its stimulus package.

USD/JPY for Friday, March 8, 2013

USD/JPY 95.71 H: 95.79 L: 94.84

The yen continues to slump, as USD/JPY trades in the 95.70 range. The pair is facing resistance just above the 96 level, at 96.02. Given the current push by the dollar, this line could face pressure. There is stronger resistance at 97.24. On the downside, there is support at 95.27. The next level of support is at 94.59. 

• Current range: 95.27 to 96.02

Further levels in both directions:

• Below: 95.27, 94.59, 93.14, 92.53, 91.94 and 91.30
• Above: 96.02, 97.24, 98.45 and 99.38

OANDA’s Open Position Ratios

The USD/JPY ratio is quiet in the Friday session. This is despite the steep losses the yen is experiencing, as the pair nears the 96 level. If the pair continues to push higher, we can expect the ratio to swing into action. Note that the ratio is close to an even split with regard to open positions, indicating that trader sentiment is divided as to whether USD/JPY will climb higher or undergo a correction.

USD/JPY continues to push higher, and is within striking distance of the 96 line. Will the upward momentum continue? We could see more activity from the pair before the trading week is done, as the US releases key employment data later on Friday.

USD/JPY Fundamentals

• 5:00 Bank of Japan Monthly Report
• 5:00 Japanese Economy Watchers Sentiment. Estimate 51.2 points. Actual 53.2 points
• 13:30 US Non-Farm Employment Change. Estimate 162K
• 13:30 US Unemployment Rate. Estimate 7.9%
• 13:30 US Average Hourly Earnings. Estimate 0.2%
• 15:00 US Wholesale Inventories. Estimate 0.4%

*Key releases are highlighted in bold

*All release times are GMT

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.