USD / JPY – Volatile as BOJ Governor Kuroda Talks Tough

USD/JPY is showing some volatility in Tuesday trading. The yen touched climbed to a high of 96.72 in the Asian session, but has since retracted, as the pair trades in the high-95 range. The markets are expecting incoming Bank of Japan Governor Haruhiko Kuroda to implement further monetary easing steps, which will likely push down the yen even further. There was some good news out of Japan, as Consumer Confidence posted its highest reading since 2007. Today’s major US release is the Federal Budget Balance, which is expected to point to a large surplus in the March release.

USD/JPY hit fresh multi-year highs following tough comments from the incoming BOJ head. During confirmation hearings, Haruhiko Kuroda declared that he would do “whatever it takes” to beat deflation and reach the government’s inflation target of 2.0%. The incoming governor reiterated that he is confident that an effective monetary policy could defeat deflation, which continues to weigh heavily on the Japanese economy. Kuroda noted that the current amount of asset buying by the BOJ will not achieve the 2.0% inflation goal. This type of rhetoric is certainly not new, but the markets were reacting to media reports that Kuroda may start implementing more easing right after he takes office next week and not wait for the BOJ’s next policy meeting in April. There were no surprises from the BOJ’s minutes from the February meeting, at which the central bank maintained its monetary policy. Some members stated they were in favor of  buying Japanese Government Bonds with longer remaining maturities if additional monetary easing is needed in the future.

In the US, there are hopes that the recovery is strengthening, following excellent employment numbers. Employment Change shot higher, and the Unemployment Rate dropped to 7.7%, its lowest level since 2008. The improving economy has led to speculation that the Fed might end the current round of QE, which involves the purchase of $85 billion in assets each month, earlier than expected. In one possible scenario, the Fed would let mature the trillions of dollars in securities they have purchased, rather than saturate the market with a huge amount of securities. The US economy has been bumpy, and has not responded all that well to the Fed’s massive purchase of assets. This “new exit” strategy could take place later in year, and would be a dramatic shift in the Federal Reserve’s current monetary policy.

USD/JPY for Monday, March 12, 2013

USD/JPY 95.78  H: 96.68 L: 95.64

In Tuesday trading, USD/JPY is showing volatility. In the Asian session, the pair hit a high of 96.68, before retracting below the 96 line. The pair is facing resistance at 96.02. This is a weak line, and could face further activity. This is followed by resistance at 97.24. This line has not been tested since August 2009. It is followed by resistance at 98.45.

• Current range: 95.27 to 96.02

Further levels in both directions:

• Below: 95.27, 94.59, 93.14 and 92.53
• Above: 96.02, 97.24, 98.45, 99.38 and 99.98

OANDA’s Open Position Ratios

USD/JPY ratio has shifted directions, and is pointing to movement in the direction of short positions in the Tuesday session. This activity is reflected in the pair’s current downward trend, as the yen shown some improvement, as USD/JPY dips below the 96 line. The ratio continues to be closely split along long and short lines, as trader sentiment is divided over whether the yen will drop further or recover some ground against the dollar.

The pair is showing some volatility, after hawkish remarks by the incoming BOJ governor. The markets are expecting further easing steps shortly, which will likely push the yen to new multi-year lows.

USD/JPY Fundamentals

• 5:00 Japanese Consumer Confidence. Estimate 43.0 points. Actual 44.3 points.
• 11:30 US NFIB Small Business Index. Estimate 91.3 points
• 18:00 US Federal Budget Balance. Estimate -200.0B

*Key releases are highlighted in bold

*All release times are GMT

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.