USD/JPY – Yen Trading Quietly at 110, Markets Eye Japanese Inflation Numbers

USD/JPY is showing little movement on Wednesday, following gains which marked the Tuesday session. The pair is trading slightly above the key 110 line. On the release front, there are no major events on the schedule. The US will release Goods Trade Balance and Crude Oil Inventories. This will be followed by Japanese SPPI, which measures inflation in the corporate sector. On Thursday, the US releases durable good reports and Japan will publish Tokyo Core CPI.

There was positive news out of Japan on Tuesday, as Japanese Trade Balance improved to JPY 0.43 trillion, compared to a March surplus of JPY 0.28 trillion. Japan has recorded five straight months in the black, with the surpluses increasing each month. The strong figure was helped by a sharp dive in imports. At the same time, exports have also fallen, as soft global demand continues to take a toll on the export sector. Meanwhile, the G7 finance ministers held meetings last week in Tokyo and the threat of currency intervention surfaced during the summit. There was strong disagreement between the US and Japan regarding recent statements from Japan that it would intervene in the currency markets to curb the yen’s sharp appreciation in 2016. Japanese Finance Minister Taro Aso insisted that recent currency moves were “one-sided and speculative” and recent yen gains had been disorderly. US Treasury Secretary Jack Lew countered that the yen’s move were not disorderly. The tension between the US and Japan over the yen was not resolved at the G-7 meeting and is likely to heat up if the currency rebounds and moves closer to the symbolic 100 level.

Will the Federal Reserve raise interest rates in June? Last week’s Federal Reserve’s minutes were more hawkish than expected, and this resulted in strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

USD/JPY Fundamentals

Wednesday (May 25)

• 8:30 US Goods Trade Balance. Estimate -60.1B
• 9:00 US HPI. Estimate 0.4%
• 9:45 US Flash Services PMI. Estimate 53.1
• 10:30 US Crude Oil Inventories. Estimate -1.7M
• 19:50 Japanese Services Producers Price Index. Estimate 0.2%

Thursday (May 26)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 275K
• 19:30 Tokyo Core CPI. Estimate -0.4%

*Key releases are highlighted in bold

*All release times are EDT

USD/JPY for Wednesday, May 25, 2016

USD/JPY May 25 at 7:35 EDT

Open: 110.16 Low: 109.86 High: 110.28 Close: 109.22

USD/JPY Technical

• USD/JPY recorded losses in the Asian session but has recovered in European trade
• 109.87 was tested earlier in resistance. It could see further activity during the day
• 108.37 is providing support
• Current range: 108.37 to 109.87

Further levels in both directions:

• Below: 108.37, 107.57 and 106.19
•  Above: 109.87, 110.66, 111.30 and 112.26

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing slight movement towards long positions on Wednesday. Long positions have a strong majority (58%), indicative of trader bias towards USD/JPY breaking out 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.