USD/JPY – Yen Gains Ground as Japanese Wage Growth Jumps

USD/JPY has posted considerable losses on Monday. Currently, USD/JPY is trading at 103.20. On the release front, Japanese Average Cash Earnings posted a gain of 1.4%, well above expectations. There are no US events on the schedule, as US markets are closed for Labor Day. On Tuesday, the US will release the ISM Non-manufacturing PMI.

On Sunday, Bank of Japan Governor Haruhiko Kuroda said that he was ready to adopt further easing measures to boost the economy, saying that the bank was prepared to use new or existing tools as part of its monetary policy. Kuroda said that deepening negative rates remained an option, although he provided few specifics about what steps the bank has in mind. Analysts expect the BoJ to adopt further easing later this month, either by cutting rates, expanding quantitative easing, or some combination of both.

Japanese indicators were soft last week, as the Japanese economy continues to struggle. Consumer Confidence rose to 42.0 points in August, its highest level since December 2015. Still, the Japanese consumer remains pessimistic about the economy, and pessimistic consumers are apt to hold tight to the purse strings and spend less, which has negative ramifications throughout the economy. On the business front, Japanese Capital Spending continues to soften, pointing to weaker spending in the business sector. The indicator came in at 3.1% in the second quarter, compared to 4.2% in Q1. This marked the weakest gain since Q4 of 2014. There was no relief from the manufacturing sector, as Final Manufacturing PMI came in at 49.5 points. The index has posted six straight readings below the 50-point level, pointing to ongoing contraction.

On Friday, US Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. Wage growth also disappointed, as Average Hourly Earnings edged lower to o.1%, shy of the forecast of 0.2%. Clearly this was not positive news, but August job data is often unreliable and tends to miss market forecasts. Will the Fed provide a “free pass” and ignore the weak job data? The markets apparently think so, as the odds of a rate hike this year are about the same after the payrolls report – the  the likelihood of a September hike is 20 percent, while a December increase is pegged at 60 percent. Still, even if the August payrolls release is overlooked, the Fed will find it hard to justify a rate increase strictly based on a robust job market. Stronger inflation numbers for August, for example, would make a rate hike an easier sell to Fed members who remain uneasy about raising rates. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. A lot can happen between now and the Federal Reserve’s policy meeting on September 21, so key US releases will be under the market microscope ahead of the Fed’s rate decision. 

USD/JPY Fundamentals

Sunday (September 4)

• 00:00 Japanese Average Cash Earnings. Estimate 0.5%. Actual 1.4%
• 22:30 BOJ Governor Haruhiko Kuroda Speaks

Monday (September 5)

• 23:45 Japanese 30-year Bond Auction

Tuesday (September 6)

• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4

*All release times are EDT

*Key events are in bold

USD/JPY for Monday, September 5, 2016

USD/JPY September 5 at 8:20 EDT

Open: 103.92 High: 104.05  Low: 103.14 Close: 103.30

USD/JPY Technical

• USD/JPY has posted losses in the Asian and European sessions
• 102.36 is providing support
• There is resistance at 103.73
• Current range: 102.36 to 103.73

Further levels in both directions:

• Below: 102.36, 101.20, 99.71 and 98.95
•  Above: 103.73, 104.99 and 106.38

OANDA’s Open Positions Ratio

USD/JPY ratio continues to show movement towards short positions. Currently, long positions have a majority (59%), indicative of trader bias towards USD/JPY reversing directions and moving to higher ground.

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