USD/JPY – Yen Jumps as BoJ Dismisses Helicopter Money Option

The Japanese yen has posted strong gains on Thursday, erasing most of the losses sustained in the Wednesday session. Currently, USD/JPY is trading at 106.30. On the release front, Japanese All Industries Activity posted a decline of 1.0%, matching the forecast. This marked the indicator’s first decline in three months. In the US, we’ll get a look at three major indicators – Unemployment Claims, the Philly Fed Manufacturing Index and Existing Home Sales.

The yen continues to show volatility this week. On Wednesday, USD/JPY shot up to 107.43, its highest level since June 7. However, the yen has rebounded strongly on Thursday as it trades at 106.30. Much of the volatility can be attributed to market speculation as to what measures the Abe government and Bank of Japan will take in the next few weeks. The yen slipped on Wednesday on speculation that the government was planning a large fiscal spending package. However, the currency reversed directions and climbed on Thursday after BoJ Governor Haruhiko Kuroda flatly rejected the use of “helicopter money” – or increasing the budget deficit by a permanent increase in monetary base – in order to combat deflation. This tool is seen as an alternative to quantitative easing and some economists have suggested it could be used in Japan, with interest rates in negative territory and the economy in danger of recession. Kuroda added that the bank has not changed its stance of utilizing three possible policy options: quantitative and qualitative easing, and interest rates at zero or lower. The Bank of Japan meets for a policy meeting in late July and the markets will be looking for hints as to what, if any, monetary steps the bank will choose to implement.

Is the Federal Reserve leaning more towards a rate hike in 2016? The markets appear to think so, as the chances of a rate hike this year has been priced in at 47%, up from just 20% at the start of July. This positive sentiment is a result of strong retail sales and housing reports over the past week. Another rate hike will be data-dependent, so if key indicators beat expectations, speculation of a rate hike will continue to increase. We’ll hear from the Fed next Wednesday, with the release of a rate statement.

USD/JPY Fundamentals

Thursday (July 21)

• 4:30 Japanese All Industries Activity. Estimate -1.0%. Actual -1.0%
• 8:30 US Philly Fed Manufacturing Index. Estimate 5.1
• 8:30 US Unemployment Claims. Estimate 271K
• 9:00 US HPI. Estimate 0.4%
• 10:00 US Existing Home Sales. Estimate 5.48M
• 10:00 US CB Leading Index. Estimate 0.2%
• 10:30 US Natural Gas Storage. Estimate 40B

*Key events are in bold

*All release times are EDT

USD/JPY for Thursday, July 21, 2016

USD/JPY July 21 at 8:05 EDT

Open: 107.18 High: 107.49  Low: 105.38 Close: 106.27

USD/JPY Technical

• USD/JPY was flat in the Asian session and has posted sharp losses in European trade
• There is resistance at 106.81
• 105.87 was tested earlier in support. It remains a weak line
• Current range: 105.87 to 106.81

Further levels in both directions:

• Below: 105.87, 104.99, 103.73 and 102.36
•  Above: 106.81, 107.65 and 108.61

OANDA’s Open Positions Ratio

The USD/JPY ratio is unchanged on Thursday. Currently, long positions have a majority (55%), 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.