USD/JPY – Rangebound as Yen Stuck at 120 Level

USD/JPY is trading quietly on Thursday, as the pair trades just below the 120 line early in the North American session. In economic news, Japanese numbers were mixed, as Core Machinery Orders posted a sharp decline, while the current account surplus beat expectations. In the US, employment numbers rebounded as unemployment claims was stronger than expected.

The Bank of Japan released its policy meeting statement on Wednesday, and there were no major surprises. The BOJ said it would continue its current level of asset purchases (about $50 billion/mth) and noted that the Japanese economy continues to “recover moderately”. At the same time, the BOJ acknowledged that the Japanese economy has slowed down due to weak domestic activity and lower demand for Japanese exports. So far the BOJ has managed to avoid expanding an already huge monetary stimulus program, but with inflation under 1%, which is a far cry from the government target of 2%, the central bank may have to act in the near future if the economy doesn’t pick up at a faster pace.

The markets are keeping a close eye on the Federal Reserve, which will release the minutes of its last policy meeting on Thursday. For months, expectations had been running high that the Federal Reserve might press the rate trigger and bump up rates at the September meeting. However, the Fed stayed on the sidelines and maintained rates, and the US dollar faced broad pressure from its rivals as a result. At the same time, the policy statement had a hawkish tone, giving the markets hope that the Fed could still make a move prior to the end of the year. These hopes have been largely dashed by a dismal US Nonfarm Payrolls report late last week, as just 142 thousand jobs were created, compared to an estimate of 201 thousand. However, market sentiment can change fairly quickly, and if the US rebounds with some strong data, we’ll likely see more optimism about a rate hike. With this background in mind, Thursday’s minutes take on added significance and could have a strong impact on the currency markets.

USD/JPY Fundamentals

Wednesday (Oct. 7)

• 23:50  Japanese Core Machinery Orders. Estimate 3.3%. Actual -5.7%.

This important manufacturing indicator was a big disappointment in August, posting a third straight decline. The weakness is the manufacturing sector is a combination of weak domestic demand and the global slowdown, which has reduced the demand for Japanese exports.

• 23:50  Japanese Current Account. Estimate JPY 1.28 trillion. Actual JPY 1.59 trillion.

The current account surplus was up sharply in August, surprising the markets. The figure marked the indicator’s best showing in 3 months.

Upcoming Key Events

Thursday (Oct. 8)

• 12:30  US Unemployment Claims. Estimate 274 thousand. Actual 263 thousand. 

The unemployment claims reading was much stronger than expected, and could revive speculation about a rate hike from the Fed before year’s end. The markets will be encouraged by the fact that this is the lowest claims reading since mid-July.

• 18:00  Federal Reserve FOMC Meeting Minutes

The markets will be watching this event closely, given the continuing speculation about a rate hike by the Federal Reserve. Any hints about a rate hike could boost the US dollar against the yen.

USD/JPY for Thursday, October 8, 2015

USD/JPY October 7 at 15:20 GMT

USD/JPY 119.86 H: 119.96 L: 119.83

USD/JPY Technical

• USD/JPY has been range bound throughout the day.
• 118.53 is providing strong support.
• 120.40 remains an immediate resistance line.
• Current range: 118.53 to 120.40

Further levels in both directions:

• Below: 118.53, 116.90, 115.90 and 113.86
• Above: 120.40, 121.50, 122.40 and 123.50

OANDA’s Open Positions Ratio

USD/JPY ratio has a majority of long positions (60%), indicative of trader bias towards the US dollar breaking out and moving to higher ground.

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.