USD/JPY – Yen Stays Close to 100, Japanese Manufacturing PMI Next

The Japanese yen is showing limited movement at the start of the week. Currently, USD/JPY is trading at 100.50. On the release front, there is just one event on the schedule, so we can expect a rather quiet day from USD/JPY. Japan will release Flash Manufacturing PMI, with an estimate of 49.5 points. There are no US events on the schedule. On Tuesday, BoJ Governor Haruhiko Kuroda will speak at an event in Tokyo, while the US will release New Home Sales.

Japan’s July trade balance was released late last week. The surplus was almost unchanged at JPY 0.32 trillion, crushing the estimate of JPY 0.14 trillion. This marked the third straight month that the trade surplus has convincingly beaten the estimates. The round number of 100 has become a major headache for the government and the BoJ, as the strong yen is bad for exports and is impeding attempts to raise inflation levels. The hesitant BoJ has not taken any significant monetary measures in recent months, which has emboldened market players to continue pushing the dollar lower. If the bank continues to stay on the sidelines, the markets will conclude that the BoJ has given up on further monetary easing. If the yen continues to strengthen, Japanese policymakers are likely to issue warnings that they will intervene in the currency markets in order to halt the yen’s upward movement. At a recent G-7 meeting, the US and Japan became entangled in a public spat when Japan threatened unilateral currency intervention. This scenario could play itself out yet again if the yen continues to rise and breaks below the 100 level.

Central bank heads will meet for the annual tête-à-tête in Jackson Hole on Thursday, and the markets will be looking for hints from Federal Reserve chair Janet Yellen regarding the Fed’s monetary plans, particularly the timing a rate hike. FOMC members are expected to express their views ahead of the key meeting. Fed Vice Chairman Stanley Fischer took the opportunity and sounded upbeat about the US economy, saying that theFed was close to its aims of a full labor market and the inflation target of 2 percent. The latter claim sounds a bit optimistic, as US inflation levels have consistently been closer to zero than the 2 percent level. It will be interesting to see if Janet Yellen follows suit and expresses satisfaction with current inflation levels.

Any market players who were hoping for some clarity from last week’s Federal Reserves minutes were likely none the wiser after combing through the minutes. The release, which provided the details of the July policy meeting, indicated that FOMC members are deeply divided on the timing of a rate hike – some want to raise levels soon, as the US labor market approaches full employment, while others expressed concern about making a move with inflation levels well below the target of 2%. Recent data is pointing in all directions, which explains why the Fed is divided over the timing of a rate hike. After a soft GDP report in late July, nonfarm payrolls was stellar. However, this was followed by weak retail sales and CPI numbers. The great rate debate needs to be resolved one way or another, as the Fed must set rates at its policy meeting next month. Policymakers will be fine-combing through upcoming economic releases, particularly employment and inflation numbers. The news remains bleak on the inflation front, as underscored by July’s consumer inflation reports. CPI posted a weak reading of 0.0%, its worst showing in five months. Core CPI dropped to 0.1%, shy of the estimate of 0.2%. As of now, a September hike is virtually off the table, while the odds of a December hike are around 40%.

USD/JPY Fundamentals

Monday (August 22)

• 22:00 Japanese Flash Manufacturing PMI. Estimate 49.5

Tuesday (August 23)

• 00:00 BoJ Governor Haruhiko Kuroda Speaks
• 10:00 US New Home Sales

*Key events are in bold

*All release times are EDT

USD/JPY for Monday, August 22, 2016

USD/JPY August 22 at 13:50 EDT

Open: 100.55 High: 100.93  Low: 100.48 Close: 100.52

USD/JPY Technical

• USD/JPY posted gains in the Asian session but has retracted in European trade
• 99.71 is providing support
• There is resistance at 101.20
• Current range: 99.71 to 101.20

Further levels in both directions:

• Below: 99.71, 98.95 and 97.78
•  Above: 101.20, 102.36, 103.73 and 104.99

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Monday, continuing the trend seen in the Friday session. Currently, long positions have a strong majority (72%), indicative of trader bias towards USD/JPY breaking out and moving 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.