USD/JPY – Yen Edges Higher, Japanese GDP Next

The Japanese yen has posted slight gains on Tuesday, continuing the upward movement seen in the Monday session. USD/JPY is trading at 107.70. On the release front, Japan will release two key indicators – Current Account and Final GDP. There are no major US releases on the schedule.

The markets are keeping a close eye on Japanese Final GDP. Last month, Preliminary GDP surprised the markets with a gain of 0.4%, above the forecast of 0.1%. The estimate for Final GDP stands at 0.5%. If GDP again beats the forecast, the yen could continue to gain ground and move closer to the 105 level, which has held in support since October 2014. A strong yen has hurt the Japanese export sector, and has resulted in warnings that Japan will intervene to combat what it terms “currency manipulations”. The US is staunchly against such intervention, and the two countries publicly disagreed on this issue at the recent G-7 meeting in Tokyo. If the yen continues to rise, we’re likely to see further exchanges on the sensitive issue of currency intervention. Japan will also release Current Account, which has been improving in recent months. The current account surplus is expected to continue to climb in the April report, with the estimate standing at JPY 2.04 trillion.

The yen is trading quietly after a closely-watched speech by Fed Chair Janet Yellen on Monday. Speaking at the World Affairs Council in Philadelphia, Yellen said she remained optimistic about the US economy and hinted that the Fed would raise interest rates, but crucially, she gave no indication as to when that might occur. This omission was in sharp contrast to her remarks just over a week ago, when she declared that a hike would likely be appropriate “in the coming months”. Yellen was cautious in her tone on Monday, saying “[i]f incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective as I expect, further gradual increases in the Federal Funds Rate are likely to be appropriate”.  Yellen played down the dismal Nonfarm Payroll report, saying that the markets shouldn’t attach too much significance to one soft report. The markets had lowered expectations for a June rate hike, and Yellen’s speech has all but priced out a June move. However, a rate increase in July or September remain on the table, and any decision by the Fed to raise or maintain rates will be data-dependent, particularly inflation and employment data.

The currency markets wrapped up last week with strong volatility, courtesy of a dismal Nonfarm Payrolls report. The April release plunged to 38 thousand, stunning the markets. This was the lowest reading since August 2010. The estimate stood at 159 thousand, which was almost identical to the previous release. The US dollar took a beating on Friday and the and the yen took full advantage, gaining 230 points as the currency climbed to 4-week highs against the greenback.. The unexpectedly soft release dampened expectations for a June hike. Some of the plunge in the NFP release was attributable to a strike by workers at Verizon, a major communications company. Still, even without this component, the indicator would have posted a gain of only 72,000, well short of expectations. In other US employment news, Average Hourly Earnings, which measures wage growth, posted a weak gain of 0.2%. The unemployment rate fell to 4.7%, but workforce participation dropped to 62.6%.

USD/JPY Fundamentals

Monday (June 6)

• 23:45 Japanese 30-year Bond Auction. Actual 0.31%

Upcoming Key Events

Tuesday (June 7)

• 1:00 Japanese Leading Indicators. Estimate 100.8%. Actual 100.5%
• 8:30 US Revised Nonfarm Productivity. Estimate -0.6%
• 8:30 US Revised Unit Labor Costs. Estimate 4.0%
• 10:00 US IBC/TIPP Economic Optimism. Estimate 49.1
• 15:00 US Consumer Credit. Estimate 19.1B
• 19:50 Japanese Current Account. Estimate 2.04T
• 19:50 Japanese Final GDP. Estimate 0.5%
• 19:50 Japanese Bank Lending
• 19:50 Japanese Final GDP Price Index. Estimate 0.9%

*Key events are in bold

*All release times are EDT

USD/JPY for Tuesday, June 7, 2016

USD/JPY June 7 at 5:40 EDT

Open: 107.45 Low: 107.21  High: 107.89 Close: 107.79

USD/JPY Technical

• USD/JPY has been flat in the Asian and European sessions
• 107.16 is providing support
• There is resistance at 108.37
• Current range: 107.16 to 108.37

Further levels in both directions:

• Below: 107.16, 105.87 and 104.99
•  Above: 108.37, 109.87 and 110.66

OANDA’s Open Positions Ratio

The USD/JPY ratio is showing little movement on Tuesday, consistent with the lack of movement from USD/JPY. Long positions have a strong majority (68%), indicative of trader bias towards USD/JPY continuing to move 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.