USD/JPY – Yen Drops on Soft Inflation Report But Recovers

The yen has shown some movement on Tuesday, although USD/JPY remains unchanged on the day, trading at 100.40. On the release front, the BoJ released the minutes from its July policy meeting. The Services Producer Price Index slipped to 0.2%, short of the forecast of 0.3%. In the US, we’ll get a look at CB Consumer Confidence, a key consumer indicator. The estimate for the September report stands at 98.6 points.

The yen posted gains on Monday, after BoJ Governor Haruhiko Kuroda said that the bank did not expect to make any major changes in its bond-buying scheme. The markets took this as a sign that the BoJ will stick with its current monetary policy, which has allowed the yen to climb 17 percent since January, when the BoJ first adopted negative rates. The yen last pushed below the 100 level in late August, and Japanese currency is again tapping on the door of this symbolic line. Will it break this week? The news from the inflation front was not positive, as SPPI dropped to 0.2% is August, down from 0.4% a month earlier.

The Fed decision to maintain interest rates at 0.25% was widely expected, but there was some drama as three of the ten FOMC members dissented with the decision, preferring to raise rates immediately by a quarter-percentage point. This significant dissent within the FOMC underscores continuing divisiveness within the Fed, with one economist calling the Fed decision “one of the most decisive FOMC meetings in recent memory”. Recent comments from FOMC members regarding a rate hike have conflicted with each other, and the mixed messages have left the markets confused. The surprising level of dissent will do little to restore market confidence in the Fed, which back in December 2015 promised up to four rate hikes in 2015, but so far has yet to raise rates this year.

The Fed policy statement was generally upbeat and broadly hinted at a December rate hike. However, the markets can be forgiven for remaining somewhat skeptical, as the Fed has previously talked about a strong US economy and failed to follow up with a rate hike. Currently, a rate hike is priced in at 51 percent, but plenty can happen until the December policy meeting (the Fed is unlikely to make a move in November, just ahead of the US presidential election). The Fed has consistently stated that the next rate hike will be data-dependent, which means that stronger economic numbers, especially on the inflation front, will increase the likelihood of a December hike.

USD/JPY Fundamentals

Monday (September 26)

• 23:50 BoJ Monetary Policy Meeting Minutes
• 23:50 Japanese Services Producer Price Index. Estimate 0.2%. Actual 0.3%

Tuesday (September 27)

• 13:00 US S&P/CS Composite-20 HPI. Estimate 5.0%
• 13:45 US Flash Services PMI. Estimate 51.1
• 14:00 US CB Consumer Confidence. Estimate 98.6
• 14:00 US Richmond Manufacturing Index. Estimate -2
• 15:15 US FOMC Member Stanley Fischer Speaks

*All release times are EDT

*Key events are in bold

USD/JPY for Tuesday, September 27, 2016

USD/JPY September 27 at 6:25 EDT

Open: 100.37 High: 100.99 Low: 100.07 Close: 100.40

USD/JPY Technical

• USD/JPY posted considerable gains in the Asian session. In European trade, the pair moved higher but then retracted
• 99.71 is providing support
• 100.55 was tested earlier in resistance. It could see further action during the Tuesday session
• Current range: 99.71 to 100.55

Further levels in both directions:

• Below: 99.71, 98.95 and 97.61
•  Above: 100.55, 101.20, 102.36 and 103.73

OANDA’s Open Positions Ratio

USD/JPY ratio has shown slight movement towards long positions. Currently, long positions have a substantial majority (71%), indicative of trader bias towards USD/JPY resuming upward movement.

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.