USD/JPY – Slumping Yen Falls to 3-Week Low

The Japanese yen has taken a breather on Wednesday, following strong losses in the Tuesday session. USD/JPY is trading at 1.04.70. On the release front, Japanese Revised Industrial Production posted a steep decline of 2.6 percent, below expectations. In the US, today’s highlight is Crude Oil Inventories, with the estimate standing at -2.3 million barrels. On Thursday, the US will release two key events – PPI and Unemployment Claims.

Japanese Prime Minister Shinzo Abe received a vote of confidence on Sunday, as his coalition scored an impressive election victory. This has paved the path for further monetary stimulus as part of the government’s economic platform, popularly known as ‘Abenomics’. The controversial program is characterized by ultra-easy monetary policy and fiscal spending, with the aim of kick-starting the economy and creating inflation. Previous rounds of monetary easing have made the yen less attractive compared to other currencies, pushing down its value. Abe has asked Economic Minister Nobuteru Ishihara to prepare a fiscal stimulus package and the markets will be focusing on the Bank of Japan, which meets in late July and could adopt further easing measures. The yen has responded negatively to all the talk about monetary easing, shedding 350 points this week.

After an historic rate hike in December, there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

USD/JPY Fundamentals

Wednesday (July 13)

• 00:34 Japanese Revised Industrial Production. Estimate -2.2%. Actual -2.6%
• 8:30 US Import Prices. Estimate 0.6%
• 10:30 US Crude Oil Inventories. Estimate -2.3M
• 13:01 US 30-year Bond Auction
• 14:00 US Beige Book
• 14:00 US Federal Budget Balance. Estimate 24.2B

Thursday (July 14)

• 8:30 US PPI. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 263K

*Key events are in bold

*All release times are EDT

USD/JPY for Wednesday, July 13, 2016

USD/JPY July 13 at 10:00 EDT

Open: 104.72 High: 105.76  Low: 103.93 Close: 104.73

USD/JPY Technical

• USD/JPY recorded losses in the Asian session but has recovered in European trade
• 104.99 is a weak resistance line. It could break during the Wednesday session
• 103.73 is providing support
• Current range: 103.73 to 104.99

Further levels in both directions:

• Below: 103.73, 102.36, 101.07 and 99.71
•  Above: 104.99, 105.87 and 106.81

OANDA’s Open Positions Ratio

The USD/JPY ratio has showed gains in short positions on Wednesday, consistent with strong gains shown by USD/JPY which has led to the covering of long positions. Currently, long positions retain a strong majority (65%), indicative of trader bias towards USD/JPY 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.