USD/JPY – Surges Higher on Reports of New BOJ Head

The Japanese yen was sharply higher in Monday trading, as the currency briefly climbed into the mid-94 range, before retracting. The volatility was sparked by reports that Prime Minister Shinzo Abe was close to naming a new governor for the Bank of Japan. There is little in the way of fundamental releases as we begin the new trading week, with just one Japanese release. The Corporate Services Price Index declined 0.2%, which matched the market forecast. There are no releases scheduled out of the US on Monday.

The yen surged in Monday’s Asian session, following reports that Prime Minister Abe was close to appointing Haruhiko Kuroda as the next governor of the Bank of Japan. The current governor, Masaaki Shirawaka, and two deputy governors will leave their positions in mid-March. Kuroda is the head of the Asian Development Bank, and is considered a proponent of aggressive monetary easing. Kuroda would likely to the line on the government’s current economic and monetary policy, which has seen the value of the yen plunge to multi-year lows in the past few months. There were also reports that one of the new deputy governors would be Kikuo Iwata, also seen as a supporter of strong monetary easing. The yen soared on the news of these likely appointments, climbing as high as 94.30 in Monday trading, before retracting below the 94 line.

 In the US, the Federal Reserve was back in the limelight last week, following the release of the minutes of its most recent policy meeting. In the meeting, members raised the possibility of ending the current round of QE even before the US employment situation improves, due to concern about the negative effect that QE could have on the financial markets. The Fed has left QE open-ended, but has previously stated that it would not end before unemployment fell to 6.5%. Meanwhile, the markets are having a tough time measuring the extent of the US recovery, as US data continues to paint a mixed picture. Last week’s numbers pointed to more of the same. Unemployment Claims came in higher than forecast, disappointing the markets. Existing Home Sales managed to beat the estimate, but Housing Starts failed to meet expectations. The manufacturing sector continues to stumble, as the Philly Fed Manufacturing Index dropped sharply. Despite the lackluster fundamentals, the dollar was broadly higher against the major currencies last week, and has had an easy time with the yen, as USD/JPY continues to test the 94 level.

USD/JPY for Monday, February 25, 2013

USD/JPY February 25 at 11:30 GMT

 USD/JPY 93.80 H: 94.30 L: 93.67

USD/JPY Technical

USD/JPY has showed volatility in early Monday trading. The pair pushed above the 94 line in the Asian session, before retracting. The pair is facing resistance at 94.59. Given the fluctuations we are seeing, this line cannot be considered safe. The next resistance line is at 95.27, which has remained intact since August 2009. On the downside, 93.73 is providing weak resistance, and could see further activity. There is stronger support 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, 96.17 and 97.31.

OANDA’s Open Position Ratios

USD/JPY has started the week with movement towards short positions. This activity is reflected in the current movement of the pair, which has dropped sharply, following a sharp climb in the Asian session. Trader sentiment remains divided on where the pair is headed, with a near split between the long and short positions.

The trading week has started in high gear, with the yen dropping sharply and then rebounding. With little economic news on Monday, USD/JPY has been reacting to reports of who will be appointed as the new governor of the Bank of Japan. We can expect the volatility to continue, as the yen trades in the high-94 range.

USD/JPY Fundamentals

• 23:50 Japanese Corporate Services Price Index. Estimate -0.2%. Actual -0.2%.

*Key releases are highlighted in bold

*All release times are GMT

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