USD/JPY – Yen Drops as Japan Slips Into Recession

USD/JPY has posted gains on Monday, as the pair trades at the 123 line early in the North American session. The yen lost ground as Japanese GDP dropped by 0.8%, a second straight decline. Over in the US, it was a quiet start to the week, with just one event on the schedule. The Empire State Manufacturing Index missed expectations, with a weak reading of -10.7 points. This was the indicator’s fourth decline in a row, underlining continuing weakness in the US manufacturing sector.

Japanese Preliminary GDP dropped by an annualized 0.8 percent in the third quarter. This was a second straight contraction for GDP, which means that technically the economy is in a recession. The weak reading was much worse than expected, as the estimate stood at -0.2%. There are both domestic and global factors which are responsible for the Japanese economy’s poor performance. Consumer and business spending are down, inflation is anemic, and weaker global demand, especially from China, has hampered economic growth. Attention will now shift to the BOJ, which releases a monetary policy statement on Thursday. Will the BOJ change monetary policy? Many analysts are calling for the BOJ to act now, but recent statements from BOJ policymakers have sounded surprisingly optimistic, so the BOJ may take the easy route and announce an economic package rather than implement new stimulus measures. Still, the BOJ will be under increasing pressure to act after the dismal GDP report, and this could weigh on the yen during the week.

US numbers on Friday were a mix. Retail Sales and PPI both fell short of expectations. Retail Sales came in at 0.1%, while Core Retail Sales was only marginally better, with a small gain of 0.2%. PPI came in at -0.4%, as the manufacturing inflation indicator posted a second straight decline. There was better news on the consumer front, as U0M Consumer Sentiment improved to 93.1 points, beating the estimate of 91.3 points. On Tuesday, we’ll get a look at US CPI and Core CPI, the primary gauges of consumer inflation. These indicators could play a crucial factor of whether the Fed makes a move and raises rates next month. Strong CPI readings could win over Fed policymakers who are concerned about whether the economy is strong enough to withstand a rate hike.

USD/JPY Fundamentals

Sunday (Nov. 15)

• 23:50 Japanese Preliminary GDP. Estimate -0.2%. Actual -0.8%

Monday (Nov. 16)

• 13:30 US Empire State Manufacturing Index. Estimate -5.3 points. Actual -10.7 points

Tuesday (Nov. 17)

• 13:30 US CPI. Estimate 0.2%
• 13:30 US Core CPI. Estimate 0.2%

*Key releases are highlighted in bold

*All release times are GMT

USD/JPY for Monday, November 16, 2015

USD/JPY November 16 at 15:10 GMT

USD/JPY 123.02 H: 123.07 L: 122.63

USD/JPY Technical

• The Japanese yen was up slightly in the Asian session and posted stronger gains in the European session. USD/JPY is steady early in North American trade.
• 123.74 continues to provide resistance.
• 122.40 is an  weak resistance line.
• Current range: 122.40 to 123.74

Further levels in both directions:

• Below: 122.40, 121.50, 120.40 and 118.53
• Above: 123.74, 125.63 and 126.84

OANDA’s Open Positions Ratio

USD/JPY ratio is almost unchanged on Monday. Long positions retain a slight majority of positions (55%). This is indicative of slight trader bias towards the pair 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.