USD/JPY – Breaks Above 94 Level as Yen Continues to Slide

The Japanese yen’s woes continue, as USD/JPY is fluctuating in Tuesday trading. The pair broke though the 94 line, and is trading in the 94.30 range. The markets have a host of Japanese indicators to analyze, so the volatility could continue. M2 Money Stock came in within expectations, while Consumer Confidence had its best showing in over two years. The manufacturing release was not as strong, with Preliminary Machine Tool Orders posting another sharp decline. Later on, Tertiary Industry Activity will be released. In the US, today’s highlight is the Federal Budget Balance.

The markets were busy with the release of several Japanese indicators, and the readings were all over the map. M2 Money Stock moved slightly higher, to 2.7%. This beat the estimate of 2.6%. Consumer Confidence improved nicely, climbing to 43.3 points. This easily beat the forecast of 40.5 points. Preliminary Machine Tool Orders were a disappointment, plunging by 26.1%. Although this was a slight improvement from the previous release, it underscores ongoing contraction in the Japanese manufacturing industry. There are two more releases scheduled for later on Tuesday – Tertiary Industry Activity and the Corporate Goods Price Index. The markets are waiting for the Federal Budget Balance release, and will also be following President Obama’s State of the Union Address early on Wednesday.

We have grown accustomed to senior Japanese officials offering their view of the value of the yen, and the currency markets have often responded to these comments. This time around, the remarks came from Washington, as US Treasury Under-Secretary Lael Brainard stated that the US supported Japan’s efforts to improve growth and combat deflation. The remarks were widely seen as a vote of confidence for the Japanese government from the US, and the yen lost more ground as a result.  

The markets are also keeping an eye on Moscow, which hosts the G-20 meeting later this week. An important topic on the agenda will be the issue of exchange rates. There has been a lot of volatility in currency rates lately – most notably, the sinking yen and the high-flying euro. There is mounting concern about currency wars, as countries increasingly rely on monetary policy to kick-start their flagging economies. The Japanese yen has shed 20% of its value since October, as the government continues with aggressive monetary stimulus to combat deflation and breathe life into the sluggish Japanese economy. On Tuesday, Japanese Finance Minister Taro Aso said that Japan would tell the G20 that it intends to continue monetary and economic policies aimed at beating deflation. Meanwhile, the Institute of International Finance, which is comprised of leading banks and financial institutions, has urged the G-20 to take steps to avoid the “possible discord on exchange rates”. However, given the need to reach a consensus, analysts expect any statement on currencies from the G-20 to be mild in nature.

USD/JPY for Tuesday, February 12, 2013

USD/JPY February 12 at 11:48 GMT

 94.18 H: 94.40 L: 93.87 

USD/JPY Technical

USD/JPY has again broken through the 94 line. Will it manage to hold onto these gains and continue higher? The pair is facing resistance at 94.59. This line has held firm since April 2010, but will come under pressure if the yen continues to drop. This is followed by resistance at 95.27. On the downside, there is weak support at 93.73. The next support level is at 93.14.

• Current range: 93.73 to 94.59

Further levels in both directions:

• Below: 93.73, 93.14, 92.53, 91.94, 91.30 and 90.91
• Above: 94.59, 95.27, 96.06 and 97.54.

OANDA’s Open Position Ratios

The USD/JPY ratio continues to fluctuate, and has shifted direction, with strong movement towards short positions. This is not reflected in the current movement of the pair, as the pair has quieted down on Tuesday. The move in the ratio towards short positions indicates that trader sentiment is shifting towards an expectation that we will see a correction to the present upward trend.

The yen is back to its losing ways and has again crossed the 94 line. Will the upward momentum continue?  With Japanese senior officials hinting at further monetary easing measures and Japanese indicators continuing to point to a sluggish economy, we could see the yen continue to hit multi-year lows.

USD/JPY Fundamentals

• 5:00 Japanese Consumer Confidence. Estimate 40.5 points. Actual 43.3 points.
• 6:03 Japanese Preliminary Machine Tool Orders. Actual -26.1%.
• 12:30 NFIB Small Business Index. Estimate 89.0 points.
• 16:30 FOMC Member Esther George Speaks.
• 19:00 US Federal Budget Balance. Estimate -4.6B.
• 23:50 Japanese Tertiary Industry Activity. Estimate 0.8%.
• 23:50 Japanese CGPI. Estimate 0.3%.

*Key releases are highlighted in bold

*All release times are GMT

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