USD/JPY – Yen Quiet as Tankan Indices Meet Expectations

USD/JPY is steady on Wednesday, as the pair trades at the 115 line. On the release front, the Japanese Tankan indices met expectations. In the US, the markets await the Federal Reserve’s monetary policy statement, with a rate hike expected. As well, the US will release retail sales and PPI. Thursday will also be busy, as the US releases CPI, the Philly Fed Manufacturing Index and unemployment claims.

The Japanese yen showed little reaction to third quarter Tankan indices, key indicators which gauge activity in the manufacturing and non-manufacturing sectors. The Tankan Manufacturing Index improved from 6 to 10 points, matching the forecast. The Non-Manufacturing Index remained unchanged at 18 points, just below the forecast of 19 points. These figures point to optimism among large manufacturing and non-manufacturing sectors. The Bank of Japan will meet on December 18, and is expected to leave interest rates unchanged at -0.10%. Despite a sluggish economy, the bank has been hesitant to step in and ease monetary policy, as negative rates have done little to kick-start economic growth or raise anemic inflation levels.

The Federal Reserve will be front and center on Wednesday, as the markets anxiously await the Fed’s rate statement. The markets have priced in a rate hike at 95 percent, most likely a quarter-point increase. This would mark the first hike by the Fed since last December, and anticipation of a hike has translated into strong gains for the greenback.  Even though the rate move has been expected (and priced in) for some time, the markets will be monitoring the statement closely – the currency markets could react based on whether the markets view the Fed’s move as a dovish hike or hawkish hike. What can we expect from the Fed after the hike? The Fed has indicated that it plans to raise rates gradually in 2017. However, this monetary outlook could change, given Trump’s declarations that he will increase government spending and cut taxes, which could lead to higher inflation levels. Once the new administration’s economic policies become clearer, the Fed may send signals to the markets as to its rate plans in early 2017.

USD/JPY Fundamentals

Tuesday (December 13)

• 18:50 Japanese Tankan Manufacturing Index. Estimate 10. Actual 10
• 18:50 Japanese Tankan Non-Manufacturing Index. Estimate 19. Actual 18
• 23:30 Japanese Revised Industrial Production. Estimate 0.1%. Actual 0.0%

Wednesday (December 14)

• 8:30 US Core Retail Sales. Estimate 0.4%
• 8:30 US PPI. Estimate 0.1%
• 8:30 US Retail Sales. Estimate 0.3%
• 8:30 US Core PPI. Estimate 0.2%
• 9:15 US Capacity Utilization Rate. Estimate 75.1%
• 9:15 US Industrial Production. Estimate -0.2%
• 10:00 US Business Inventories. Estimate -0.1%
• 10:30 US Crude Oil Inventories. Estimate -1.4M
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.75%
• 14:30 US FOMC Press Conference
• 19:30 Japanese Flash Manufacturing PMI. Estimate 51.5

Upcoming Key Events

Thursday (December 15)

• 8:30 US CPI. Estimate 0.2%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Philly Fed Manufacturing Index. Estimate 9.1
• 8:30 US Unemployment Claims. Estimate 258K

*All release times are EST

*Key events are in bold

USD/JPY for Wednesday, December 14, 2016

USD/JPY December 14 at 6:25 EST

Open: 115.22 High: 115.33 Low: 114.85 Close: 114.97

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• 114.13 is providing support
• 115.88 is the next line of resistance
• Current range: 114.13 to 115.88

Further levels in both directions:

• Below: 114.13, 113.86, 112.48 and 111.45
•  Above: 115.88, 116.88 and 118.05

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged in the Wednesday session. Currently, long positions have a majority (58%). This is indicative of trader bias towards USD/JPY breaking out and moving lower.

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.