USD/JPY – Yen Softer on Weak Japanese Retail Sales

The Japanese yen is down slightly on Thursday, as USD/JPY trades at the 119 line early in the North American session. On the release front, there are plenty of releases for the markets to digest. US Core Durable Goods Orders posted a decline of 1.2%, and Durable Goods Orders plunged 5.1%. There was better news on the employment front, as unemployment claims dipped to 278 thousand, beating the forecast. Pending Home Sales will be released later. Over in Japan, the BOJ will release a monetary policy statement. We’ll also get a look at Household Spending and Tokyo Core CPI, both market-movers which could cause some volatility from USD/JPY.

It’s been a mixed day for key US releases. Unemployment Claims dropped to 278 thousand, below the forecast of 281 thousand. This was a strong improvement from the previous reading of 293 thousand. Meanwhile, US durables looked awful, as the US manufacturing sector continues to struggle. Core Durable Goods Orders dropped 1.2%, marking the third decline in four readings. Durable Goods Orders slipped 5.1%, the steepest slide since August 2014. Despite these dismal readings, the yen has been unable to make any headway against the US dollar.

The Federal Reserve was on center stage on Wednesday, and as expected, the Fed maintained interest rates at 0.25%. The monetary policy statement was dovish in tone, as policymakers took note of soft spots in the economy, such as consumer spending and exports. The US inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. At the same time, the Fed emphasized that the US labor market remains strong. Will we see another rate hike in March? It’s a possibility, but the Fed has yet to provide any strong hints on its next move. Given the Fed’s continuing concerns about a lack of inflation however, it’s difficult to foresee another rate hike in March absent a strong improvement in key US indicators.

Japanese fundamentals do not paint a pretty picture of the Japanese economy, which continues to be hampered by weak growth and low inflation levels. This was underscored on Wednesday, as Retail Sales, the primary gauge of consumer spending, fell 1.1%, compared to the estimate of a 0.1% gain. This was a second straight decline, pointing to a wary Japanese consumer who is cutting back on spending. As well, the BoJ will release its policy statement. Will we see further easing steps? BoJ Governor Haruhiko Kuroda has said that the BoJ would step in with further monetary easing if necessary, and additional easing steps will likely push the yen to lower levels. If Thursday’s consumer spending and inflation numbers disappoint, there will be increased pressure on the central bank to step in with some monetary easing in order to kick-start the struggling economy.

USD/JPY Fundamentals

Wednesday (Jan. 27)

• Japanese Retail Sales. Estimate 0.1%. Actual -1.1%

Thursday (Jan. 28)

• 8:30 US Core Durable Goods Orders. Estimate -0.1%. Actual -1.2%
• 8:30 US Unemployment Claims. Estimate 281K. Actual 279K
• 8:30 US Durable Goods Orders. Estimate -0.6%. Actual -5.1%
• 10:00 US Pending Home Sales. Estimate 1.0%. Actual 0.1%
• 10:30 US Natural Gas Storage. Estimate -215B. Actual -211B
• 18:30 Japanese Household Spending. Estimate -2.3%
• 18:30 Japanese Tokyo Core CPI. Estimate 0.1%
• 18:30 Japanese National Core CPI. Estimate 0.1%
• 18:30 Japanese Unemployment Rate. Estimate 3.3%
• 18:50 Japanese Preliminary Industrial Production. Estimate -0.3%
• Tentative – BOJ Monetary Policy Statement

Friday (Jan. 29)

• 8:30 US Advance GDP. Estimate 0.8%

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Thursday, January 28, 2016

USD/JPY January 28 at 9:15 EST

Open: 118.48 Low: 118.41 High: 118.94 Close: 118.97

USD/JPY Technical

• USD/JPY posted slight losses in the Asian session but recovered in European trade. The pair is uneventful early in North American trade
• There is resistance at 119.58
• 118.53 is a weak support line
• Current range: 118.53 to 119.58

Further levels in both directions:

• Below: 118.53, 116.88, 115.45 and 113.23
• Above: 119.58, 120.40 and 121.50

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little change. Long positions continue to command a solid majority (60%), which is indicative of strong trader bias towards the pair continuing to move higher.

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.