USD/JPY – Yen Hits 3-Week High, BOJ Meeting Looms

The US dollar remains under pressure, as USD/JPY has posted gains for a second straight day. In Wednesday’s North American session, USD/JPY is trading at 111.70, down 0.31% on the day. On the release front, there are no Japanese data releases, but the markets will be paying close attention to the BoJ rate statement. In the US, there was positive news from the housing sector. Building Permits climbed to 1.25 million, beating the estimate of 1.20 million. Housing Starts improved to 1.22 million, above the forecast of 1.16 million.

US housing numbers have been mixed in recent months, but Tuesday’s releases pointed to a strengthening housing sector. Building Permits improved to 1.25 million in June, up from 1.17 million a month earlier. Housing Starts jumped to 1.22 million, up sharply from 1.09 in the May report. The solid numbers will give a boost to second quarter numbers. US Advance GDP will be released next week, and the markets don’t want to see a repeat of the first quarter reading, which missed expectations with a gain of just 0.7%.

The Bank of Japan is in the spotlight, as policymakers gather for a policy meeting later on Wednesday. Unlike other central banks, such as the ECB and the Federal Reserve, there are no expectations of a tightening of monetary policy in the near future. However, investors will be looking for any tweaks to current monetary policy, which could trigger some movement from the yen. Inflation continues to hover below 1.0%, well below the BoJ’s target of 2%. Most analysts expect the bank to push back the timeline for the 2% target, which is currently “around fiscal 2018”, but do not anticipate the bank lowering the target. The BoJ has consistently said that it will not reduce its radical stimulus program until inflation levels move higher. Given current economic conditions, this is unlikely before 2018 at the earliest.

President Trump hasn’t done very well at learning how to tango with Congress, and this week’s debacle on Capitol Hill could make the gap between Trump and Republican lawmakers even harder to bridge. Trump had vowed to replace Obamacare, but his health care bill has stalled in the Senate before lawmakers even had a chance to vote on the proposal. With some conservative Republicans coming out against the bill, it’s questionable if the Republicans can pass another version before Congress takes a recess in August. Trump had promised to pass a health care before the summer break, so his credibility will take another hit if he’s unable to do so. Trump has been in office for six months, but has been unable to get Congress to pass any significant bills, even though the Republicans enjoy a majority in both houses of Congress. With this latest setback, there is growing skepticism as to whether Trump will be able to convince Congress to pass other key parts of his agenda – tax reform and fiscal spending.  This paralysis on Capitol Hill has deepened investor pessimism about Trump’s legislative agenda and is weighing on the US dollar.

USD/JPY Fundamentals

Wednesday (July 19)

• 8:30 US Building Permits. Estimate 1.20M. Actual 1.25M
• 8:30 US Housing Starts. Estimate 1.16M. Actual 1.22M
• 10:00 US Crude Oil Inventories. Estimate -3.6M. Actual -4.7M
• Tentative – BoJ Monetary Policy Statement

Thursday (July 20)

• Tentative – BoJ Outlook Report
• Tentative – BoJ Policy Rate
• 14:30 B0J Press Conference
• 8:30 US Unemployment Claims. Actual 245K
• 8:30 US Philly Fed Manufacturing Index. Estimate 23.4

*Key events are in bold

USD/JPY for Wednesday, July 19, 2017

USD/JPY July 19 at 11:10 EDT

Open: 112.06 High: 112.24 Low: 111.55 Close: 111.71

USD/JPY Technical

USD/JPY showed little movement in the Asian and European sessions. The pair has headed lower in North American trade

• 110.94 is providing support
• 112.57 is the next resistance line

Current range: 110.94 to 112.57

Further levels in both directions:

• Below: 110.94, 110.10 and 108.63
•  Above: 112.57, 113.55, 114.37 and 115.51

OANDA’s Open Positions Ratios

USD/JPY ratio is showing slight movement towards long positions in the Wednesday session. Currently, short and long positions are evenly split, indicative of a lack of trader bias as to what direction USD/JPY will take next.

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.