USD/JPY – Yen Shrugs off Soft Consumer Spending and CPI Data

The Japanese yen is almost unchanged in the Friday session, although the currency is showing some volatility. Currently, USD/JPY is trading just above the 101 level. On the release front, Japanese Household Spending declined 4.6%, much worse than the forecast of a 2.1% drop. Tokyo Core CPI came in at -0.5%, edging lower than the forecast of -0.4%. In the US, Friday’s highlight is UoM Consumer Sentiment, with the markets predicting a strong reading of 90.1 points.

The Japanese consumer remain pessimistic about the economy and are holding tight to their purse strings, as underscored by this week’s consumer spending indicators. Household spending slipped 4.6% in August, marking its sharpest decline in five months. The dismal release comes on the heels of retail sales, which dropped 2.1% in August, its lowest monthly decline since March 2015. Weak spending is hurting the weak economy and is having a negative effect on inflation, which remains very low. However, the yen has managed to weather these poor readings, and is almost unchanged over the week. There was little to cheer about on the inflation front, as Tokyo Core CPI declined 0.5%. The key indicator has posted a decline every month this year, as the economy continues to struggle with deflation.

The US economy expanded 1.4% in the second quarter, revised from the preliminary estimate of 1.1%. Consumer spending has been strong, making up for sluggish business investment and weaker demand for US exports. The US consumer is optimistic about the economy, as underscored by recent CB consumer confidence surveys, which have been above the 100-level for two months running. On the labor front, unemployment claims came in at 254 thousand, marking the eighth straight week that jobless claims have come in below the forecast.

US consumer confidence numbers continue to impress the markets. The CB Consumer Confidence jumped to 104.1 points in September, much higher than the forecast of 98.6 points. This excellent release improved upon a strong August report of 101.1 points. Stronger consumer confidence often translates into increased spending by consumers, which is vital for economic growth. If upcoming consumer spending numbers also move higher, the likelihood of a December hike will likely increase. Currently, the markets have priced in a quarter-point hike in December at 48 percent.

USD/JPY Fundamentals

Thursday (September 29)

• 19:30 Japanese Household Spending. Estimate -2.1%. Actual -4.6%
• 19:30 Tokyo Core CPI. Estimate -0.4%. Actual -0.5%

Friday (September 30)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.2%
• 8:30 US Personal Income. Estimate 0.2%
• 9:45 US Chicago PMI. Estimate 52.1
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.1
• 10:00 US Revised UoM Inflation Expectations

*All release times are EDT

*Key events are in bold

USD/JPY for Friday, September 30, 2016

USD/JPY September 30 at 6:10 EDT

Open: 101.20 High: 101.78 Low: 100.73 Close: 101.10

USD/JPY Technical

• USD/JPY has shown volatility in the Asian and European sessions but is almost unchanged on the day
• 101.20 remains fluid. Currently, it is a weak resistance line which could see further action during the Friday session
• 100.55 is providing resistance
• Current range: 100.55 to 101.20

Further levels in both directions:

• Below: 100.55, 99.71 and 98.95
•  Above: 101.20, 102.36, 103.02 and 104.32

OANDA’s Open Positions Ratio

USD/JPY ratio is showing little movement in the Friday session. Currently, long positions have a substantial majority (69%), 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.