USD/JPY – Dollar Climbs Above 105 Yen as Japanese Deflation Continues

USD/JPY is unchanged in the Friday session, as the pair trades at 105.30. On the release front, Japanese Household Spending declined 2.6%, above the forecast of -2.1%. Tokyo Core CPI came in at -0.4%, close to the estimate of -0.5%. In the US, today’s key release is Advance GDP, with the estimate standing at 2.5%. We’ll also get a look at consumer confidence levels, with the release of UoM Consumer Confidence. The markets are expecting the indicator to drop to 88.2 points.

Deflation shows no signs of letting up in Japan. Tokyo Core CPI, the primary gauge of consumer inflation, posted a sixth straight decline in September. Despite radical easing from the Bank of Japan, inflation levels haven’t improved. Weak consumer confidence hasn’t helped, as worried consumers aren’t spending. The BoJ will meet for a policy meeting next week, but given with the slumping yen trading at 105, analysts don’t expect the bank to increase monetary easing. Earlier in the week, a former deputy BoJ Governor warned against further monetary stimulus. Toshiro Muto said that the BoJ’s ultra-easy policy had blurred the boundary between fiscal and monetary policy. On the currency front, Muto said that the government was unlikely to intervene in the currency markets unless the yen appreciated sharply and moved towards the 90 level. Earlier this year, the US and Japan squabbled at a G-20 meeting when Japan said it would consider unilateral intervention if the yen became too strong. The US slammed Japan over this announcement, reminding Japan that the G-20 members were bound to avoid any currency manipulations.

The markets are expecting a strong US Advance GDP release for the third quarter. If the data doesn’t disappoint, the odds of a rate hike in December will likely increase. Currently, a hike is priced in at impressive 72 percent. The prospect of a US rate hike for the first time in a year has helped the US dollar record gains against the yen. The US economy remains strong, buoyed by a labor market that is close to capacity, with unemployment at a healthy 5.0%. Inflation levels, however, remain low and are unlikely to show much improvement in the next few months. Although the Fed would prefer stronger inflation, other economic indicators remain strong enough such that the lack of inflation is unlikely to be the critical factor in the Fed rate decision. The Fed will also hold a policy meeting in early November, but is unlikely to make any rate moves just before the US presidential election.

USD/JPY Fundamentals

Thursday (October 27)

• 19:30 Japanese Household Spending. Estimate -2.6%. Actual -2.1%
• 19:30 Japanese Tokyo Core CPI. Estimate -0.5%. Actual -0.4%
• 19:30 Japanese National Core CPI. Estimate -0.5%. Actual -0.5%
• 19:30 Japanese Unemployment Rate. Estimate 3.1%. Actual 3.0%

Upcoming New Events

Friday (October 28)

• 5:00 BoJ Core CPI. Estimate 0.3%. Actual 0.2%
• 8:30 US Advance GDP. Estimate 2.5%
• 8:30 US Advance GDP Price Index. Estimate 1.3%
• 8:30 US Employment Cost Index. Estimate 0.6%
• 10:00 US Revised U0M Consumer Sentiment. Estimate 88.2
• 10:00 US Revised UoM Inflation Expectations

*All release times are EDT

*Key events are in bold

USD/JPY for Friday, October 28, 2016

USD/JPY October 28 at 6:55 EDT

Open: 105.22 High: 105.42 Low: 105.04 Close: 105.28

USD/JPY Technical

• USD/JPY posted slight losses in the Asian session and has been choppy in the European session
• 104.32 has strengthened following strong gains by USD/JPY in the Thursday session
• 105.44 is a weak resistance line
• Current range: 104.32 to 105.44

Further levels in both directions:

• Below: 104.32, 103.02, 102.36 and 101.20
•  Above: 105.44, 106.72 and 107.49

OANDA’s Open Positions Ratio

USD/JPY ratio is unchanged on Friday, consistent with the lack of movement from USD/JPY. Currently, long positions have a small majority (52%), indicative of slight trader bias towards USD/JPY breaking out and moving 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.