USD/JPY – Yen Surge Continues, Breaks Below 115

The Japanese yen has posted gains on Tuesday, as USD/JPY trades at 114.80 in the European session. On the release front, Japanese Preliminary Machine Tool Orders posted a decline of 17.2%. Later in the day, Japan releases PPI. Today’s key event is US JOLTS Job Openings, with the markets expecting a reading of 5.43 million, which would be a slight drop from the previous release. On Wednesday, Fed Chair Janet Yellen will testify before the House Financial Services Committee in Washington. The markets will be all ears, looking for clues regarding the Fed’s view about another rate hike.

The yen is roaring upwards, as USD/JPY broke below the 115 level for the first time since November 2014. The Japanese currency has looked superb, gaining 650 points against the greenback since February 1. Japanese stock markets have registered sharp drops, and this was good news for the safe-haven yen, which has benefited from nervous investors spooked by the collapse in oil prices and the Chinese slowdown. Softness in recent US numbers has likely dampened Fed enthusiasm for a rate hike anytime soon, and if Janet Yellen paints a pessimistic picture in her testimony before Congress, the remarkable yen rally could continue.

The BOJ released a summary of its last policy meeting, which shocked the markets when the BOJ adopted negative rates for the first time in its history. The summary indicated that policymakers were deeply divided over the move, which carried by a 5-4 vote. One board member expressed concern that negative rates sent the wrong message about the BOJ’s commitment to combat inflation and could result in other central banks holding off from rate hikes. Predictably, the yen dropped sharply following the announcement about negative rates, but has since rebounded and easily recovered those losses. Despite the yen’s surge, Japanese fundamentals remain weak. Average Cash Earnings, which measures disposable income, disappointed in the November report. The indicator barely moved, posting a weak gain of 0.1%, which was short of the estimate of 0.7%. The Japanese consumer has been keeping a tight hand on the purse strings, as weak consumer spending has been having a negative impact on the economy. Wage growth remains weak, so consumers are holding back on spending. Weak inflation continues to hobble the economy, and PPI, which measures inflation in the manufacturing sector, is expected to post a sharp decline.

USD/JPY Fundamentals

Tuesday (Feb. 9)

• 00:59 Japanese Preliminary Machine Tool Orders. Actual -17.2%
• 6:00 US NFIB Small Business Index. Estimate 94.6 points. Actual 93.9 points
• 10:00 US JOLTS Job Openings. Estimate 5.41M
• 10:00 US Wholesale Inventories. Estimate -0.1%
• 18:50 Japanese PPI. Estimate -2.8%

Upcoming Key Events

Wednesday (Feb. 10)

• 15:00 Fed Chair Janet Yellen Testifies

*Key releases are highlighted in bold

*All release times are EST

USD/JPY for Tuesday, February 9, 2016

USD/JPY February 9 at 8:10 EST

Open: 115.66 Low: 114.18 High: 115.66 Close: 114.77

USD/JPY Technical

• USD/JPY has shown some choppiness in the Asian and European sessions.
• 114.65 has switched to a support line. It was tested earlier and could break in the North American session.
• 115.90 has some breathing room in resistance as the pair trades at lower levels.
• Current range: 114.65 to 115.90

Further levels in both directions:

• Below: 114.65, 113.86 and 112.48
• Above: 115.90, 116.88, 118.53 and 119.58

OANDA’s Open Positions Ratio

USD/JPY ratio is showing strong movement towards shorts positions, although long positions still have a strong majority (63%). This is indicative of strong trader bias towards the pair reversing directions and moving 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.