USD/JPY – Dollar Punches Above 107 Yen, Fed Minutes Ahead

The Japanese yen has posted losses in the Tuesday session. In North American trade, USD/JPY is trading at 107.31, up 0.55% on the day. On the release front, there are no US events on the schedule. Later in the day, Japan will release Manufacturing PMI and All Industries Activity. On Wednesday, the Federal Reserve will release the minutes of its January meeting. As well, the US will release Existing Home Sales.

The yen looked sharp last week, as the currency gained 2.5% against the retreating dollar. However, the greenback has bounced back on Tuesday, pushing the yen above the 107 line. Have investors regained their appetite for risk? The stock markets could continue to set the direction for the yen – if the markets remain in green territory, the safe-haven yen could continue to lose ground.

Bank of Japan Governor Harohiko Kuroda has been reappointed to another 5-year term, the first time that a BoJ governor has been re-elected to a second term in 60 years. The move is a clear message from the Bank that it is no rush to make any change to the massive stimulus program, a key component of Abenomics. Kuroda has made it a priority to raise inflation, but this has proven a daunting task, as inflation is still below of the BoJ’s inflation target of 2%. In this period of strong volatility in the currency markets, Kuroda’s re-election may have a calming effect on the markets. What’s next for the BoJ? The yen has jumped 4.9% in 2018, and if the rise continues, policymakers could consider further easing in order to curb the yen’s value and protect the export sector, which has improved due to stronger global demand.

It’s been a busy start for Jerome Powell, who has just commenced his stint as chair of the Federal Reserve. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four, or even five times in 2018. Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy earlier in February. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.

USD/JPY Fundamentals

Tuesday (February 20)

• 19:30 Japanese Flash Manufacturing PMI. Estimate 55.2
• 23:30 Japanese All Industries Activity. Estimate 0.5%

Wednesday (February 21)

• 9:45 US Flash Manufacturing PMI. Estimate 55.4
• 9:45 US Flash Services PMI. Estimate 53.8
• 14:00 US FOMC Meeting Minutes

*All release times are EST

*Key events are in bold

USD/JPY for Tuesday, February 20, 2018

USD/JPY February 20 at 10:10 EST

Open: 106.59 High: 107.38 Low: 106.56 Close: 107.31

USD/JPY Technical

USD/JPY posted small gains in the Asian session and stronger gains in European trade. The pair continues to move higher in the North American session

• 107.29 has switched to a support line following gains by USD/JPY on Tuesday
• 108.00 is the next resistance line

Current range: 107.29 to 108.00

Further levels in both directions:

• Below: 107.29, 106.64, 105.53 and 104.32
• Above: 108.00, 109.11 and 110.48

OANDA’s Open Positions Ratios

USD/JPY ratio is unchanged in the Tuesday session. Currently, long positions have a majority (75%), indicative of trader bias towards USD/JPY continuing to move higher.

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.